Northern Explorations ("Norex") advised that recent reports in the media as regards natural gas futures indicate potential trends and factors that could lead to significant opportunities within the sector.
A story published by Bloomberg recently identified that some analysts have reported that the fundamental picture is putting a short-term cap on gas at $4 with expectations of an inventory increase of at least 100 billion cubic feet. Several analysts also indicated a need to see real evidence that storage injections are being curtailed in order to see a return in demand that would justify predicting a sustained rally.
These same analysts need look no further than our current national production figures. A key factor that supports the cutback of reserves is the widely stated government reports showing U.S. natural gas production to drop 1.1 percent to 57.93 billion cubic feet a day this year from 2008 production as lower prices prompt drillers to idle rigs. This production estimate is down from an estimate of 57.98 billion in the May Energy Department's monthly Short-Term Energy Outlook.
This reduced exploration will accelerate the decline in output into 2010 with production forecast to fall 2.6 percent next year to 56.42 billion cubic feet a day as the report from the department's Energy Information Administration recently showed.
Furthermore, the number of rigs drilling for natural gas has dropped 56 percent from a peak of 1,606 in September and is at its lowest in more than six years, according to data from Baker Hughes Inc. Companies have cut back on gas exploration and production as the worst recession in five decades reduced demand from factories and power plants.
Norex Energy's Management believes that this combination of reduced exploration and production should inevitably end in a dramatic upswing in prices. The start of this resurgence could well be fueled early as temperatures climb during the summer months leading to increased energy demand, especially in those states such as California that rely heavily on natural gas powered electrical generation systems.
Another key natural element is the ever-present possibility of large storms, tornadoes or hurricanes adding increased demands as we head towards the end of the summer and into early fall. A combination of hot summer months, turbulent fall weather, limited exploration and lowered overall natural gas production could lead to a significant demand increase and resultant price spike within a very short period of time.
Management has predicated its extremely conservative business model on realistic near-term natural gas pricing at well under the currently predicted short term cap. The Company is gratified to see the current gradual increases, but believes strongly that great promise and opportunity for Norex and the sector as a whole is a foreseeable eventuality.
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