Natural gas may need epic price collapse

The Natural Gas Rout

Even if you were thinking that new EPA rules on fracking would give the market a chance to rally you had better think again. The Wall Street Journal reported that, "The Environmental Protection Agency postponed its first rules aimed at reducing air pollution from oil and natural-gas wells drilled by hydraulic fracturing, following a last-minute push by energy companies to weigh in on the new standards. The EPA said in a statement Monday it is postponing the rules by two weeks to April 17. The EPA said it needs more time to digest more than 150,000 comments submitted on the rule."

Now the big problem is where to store the gas. According to the Vancouver Sun, "storage capacity in the United States is already at 60%, with injections into storage being recorded in March for the first time since 1977. Analysts expect U.S. storage will start the traditional injection season April 1 with levels approximately 850 bcf higher than 2011 at 2,460 bcf, eclipsing a previous record set in 2006.The early start to injection season will have serious implications for U.S. natural-gas working capacity, which will be tested in the coming months, said oil and gas analysts Bentek Energy. "Assuming natural gas injections mimic last summer, the trajectory would imply inventories of 4,698 bcf by November, which is 220 bcf higher than total U.S. design capacity," Bentek said in a report this week.”

The bottom line is that this market needs a price shock to the downside to fix what can be a disaster for the storage and pipeline system. One way to approach this market is to buy puts as this sell off could stun us.

The Wall Street Journal reports that Encana Corp. is seeking partners to speed the development of more profitable oil and liquids-rich gas properties in North America, its latest shift as it struggles with low natural-gas prices. The Calgary-based gas producer — Canada's largest and North America's second-biggest by volume after Exxon Mobil Corp. — said it is shopping minority stakes to potential partners to help it develop some 1.6 million acres in five oil and liquids plays.  The fields are in Mississippi, Louisiana, Michigan, Texas, Oklahoma and Kansas and the Canadian province Alberta.  The company said, "It's premature to speculate on the size or value of any potential transaction." In January, Oklahoma City-based Devon Energy Corp. disclosed a similar joint-venture effort, selling minority interests in five oil-rich fields to China Petrochemical Corp. for $2.5 billion.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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