Natural gas surged to a 15-month high inspired by a bullish supply report from the Energy Information Administration and surprisingly strong demand. While many attribute the surge in demand to all of the cold weather, just below the surface something much more significant is going on. In what could be the best long term play in all of the commodities markets, natural gas may be on track to create a major bottom. The reason is that because of the shale gas revolution and the low price of natural gas, demand is being created. Low prices at some point always cure low prices and with the abundance of natural gas, it's clear burning properties means natural gas time is here.
For weeks I have been documenting all of the demand growth opportunities in gas and am on record for a price prediction of $7.00 natural gas by 2015. Others are now coming out of the woodwork and jumping on the band wagon so the secret is getting out. The days to think about gas as a commodity that will forever be hopelessly oversupplied are over and it is now time to start building your position in the long end of the curve for a nice bull market run to the upside.
Even in the short end of the curve that natural gas bears have been beating as of late, the Energy Information Administration reported a very bullish natural gas report that showed working gas in storage was 1,938 Bcf as of Friday, March 8, 2013, according estimates. That showed a decline of 145 Bcf from the previous week. Yet stocks are now 440 Bcf less than last year at this time and now only 198 Bcf above the 5-year average of 1,740 Bcf.
Part of this has been record power generation and signs that the big power generators that switched from coal to gas may not switch back. Yesterday Bloomberg News reported that power producers including Duke Energy Corp., NRG Energy Corp., Southern Co. and Dynegy Inc. say they plan to run their gas-fired units this year at close to the top rates of 2012. Plants burned 24.96 billion cubic feet of gas a day last year, up 4.21 billion from a year earlier and a bigger gain than in the five previous years combined. Gas futures have rebounded 94% since trading at a 10-year low last April as utilities switched from coal and unusually hot weather spurred cooling demand. That contrasts with an Energy Information Administration projection that demand for gas will slide 7.5% this year.
The reason that these plants won't switch back is that the EPA has it in for coal. More coal plants will be retired and gas demand will rise as power generators take advantage of locking in these very low prices.
I have also documented the big companies that are moving to natural gas. Now Reuters reports on a company that is getting ready to feed our natural gas cars "ENN Group Co Ltd, one of China's largest private companies, is quietly rolling out plans to establish a network of natural gas fueling stations for trucks along U.S. highways. With plans to build 50 stations this year alone, ENN joins a small but formidable group of players -- including Clean Energy Fuels Corp and Royal Dutch Shell Plc -- in an aggressive push to develop an infrastructure for heavy-duty trucks fueled by cheap and abundant natural gas. Clean Energy is backed by T. Boone Pickens and Chesapeake Energy Corp.
The move is yet another example of China's ambition to grab a piece of the U.S. shale gas boom. Just last month Sinopec Group said it would pay $1 billion for some of Chesapeake's oil and gas properties in the Mississippi lime shale. The natural gas bounty is also expected to help the U.S. transport industry off its dependence on diesel fuel made from imported crude oil, and the trucking industry is in a big push to use more of the domestically produced fuel. The potential savings are huge: Shippers can save around $2 a gallon by switching to natural gas from diesel.
Nearly half of the garbage trucks sold in the United States last year run on natural gas. They are able to refuel at dedicated stations at their home bases. To convince the far larger market for long-haul trucking to run on natural gas, truckers need to know they can refuel along their highway routes .Enter ENN, led by billionaire energy tycoon Wang Yusuo. The company has already built natural gas stations in China, which is farther along in its adoption of natural gas trucks.”
A loyal Energy Report reader, George Sutherland, wrote in and said, ”Great piece today — only one caveat. You and many others create the impression that the big breakthrough in the tight formation program is hydraulic fracturing, whereas it is actually due to combining fracking with horizontal drilling. I was involved in explosive fracking programs over 40 years ago in vertical bore holes. The gains come from fracturing along hundreds of feet (or maybe thousands?) of generally horizontal bore holes instead of just the vertical width of the formation, which might be less than fifty feet. That geometrical advantage coupled with improved fracking materials have led to the dramatic increases in production from previously uneconomic formations. I still wonder how effective explosive fracturing would be in horizontal wells." Thank you George! Great point and insight!