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Now Is The Time To Invest In Natural Gas

 May 04, 2012 01:34 PM
 


(By Street Authority) Since natural gas prices fell of a cliff in 2008, they have continued to descend further and further -- until just recently slipping below $2 per thousand cubic feet (Mcf). Prices have perked up a bit recently, but considering how far it's fallen, it's of little comfort to investors who have tried to catch this falling knife.
 
Gas hasn't been this cheap in 10 years. The peak above $13 per Mcf in 2008 is now a distant memory.

Natural gas looked cheap back in January when it was trading around the $2.50 mark. Since then, the commodity tumbled another 20%, with prices really nose-diving below $2.00 in the wake of an unseasonably warm winter before picking back up to near the $2.30 mark.
 
I've talked about the reasons for this historic drop before in Scarcity & Real Wealth, my monthly advisory. It's no mystery that heavy shale development has unlocked vast quantities of natural gas that have glutted the market. But the blame for this latest downturn belongs mostly to Mother Nature. Natural gas storage facilities typically fill up in the fall, but then draw down in the winter as heating demand rises.
 
But December and January were unusually mild, so fewer homeowners felt the need to crank up the thermostat. That shrunk the withdrawals that are customary in winter, so we entered the spring with a record supply surplus.
 
In fact, there are concerns that the nation's underground storage capacity could be maxed out later this year. As it stands, the latest report from the U.S. Department of Energy shows that natural gas stockpiles rose 28 billion cubic feet in the week ended April 27 to 2.576 trillion cubic feet. For perspective, that's 871 billion cubic feet higher than this time last year and nearly 60% above the five-year average for this time of year.
 
Here's the problem in a nutshell. The amount of natural gas consumed in the United States each year has risen by 12% since 2006. But production has increased at twice that rate, climbing 24%, with output touching 63 billion cubic feet per day last year.
 
That dynamic is slowly starting to change. On the supply side, virtually every energy producer large and small is cutting back or even abandoning dry gas fields and directing drilling and exploration expenditures toward more oil-oriented plays.


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