Norex Restates Optimistic Outlook for Rise in Nat. Gas Prices
Northern Explorations restates its position that Natural Gas is currently an undervalued opportunity with near term upside potential.
As reported on June 10th, Norex Management agreed with reports that a fundamental picture was developing that could result in a short-term cap on gas at $4 due to expectations of an inventory increase of at least 100 billion cubic feet. Certain analysts at that time 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.
The Company went on to point out a number of key factors that could well predicate a return to demand. These included a well documented U.S. natural gas production drop of 1.1 percent to 57.93 billion cubic feet per day from 2008 production as lower prices prompted drillers to idle rigs. Reduced exploration is predicted to accelerate this decline in output into 2010 with production forecast to fall 2.6 percent next year to 56.42 billion cubic feet a day as reported by the Energy Department. 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.
Norex Energy's Management indicated then, and continues to believe that this combination of reduced exploration and production will inevitably end in an upswing in prices. The start of this resurgence could well be fueled early as temperatures climb during the late summer months leading to increased energy demand, especially in those states such as California that rely heavily on natural gas powered electrical generation systems. A combination of hot summer months, turbulent, stormy 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.
In support of this theory, Neil McMahon, a London-based analyst at Sanford C. Bernstein & Co. recently stated, "U.S. natural-gas demand from industry and increased power generation will cause the gas market to 'tighten,' pushing up prices. The market will 'tighten considerably toward the end of the year,' while delays in starting new liquefied natural gas projects will also bolster prices." Lower costs may prompt power generators to use more of the fuel, boosting prices as LNG proves unable to offset a decline in U.S. onshore gas production, Bernstein said.