Natural Gas at a cusp

As I write this, Natural Gas ("NG") trades at roughly a 50% discount to oil in BTU's. A better comparison would be heating oil or gasoline - finished products - because NG can be taken from the well head and burned at an electric plant or at your home. Crude cannot be used until it is processed into finished fuels. The discount might be nearly 60%.

This will not last. The U.S. Department of Energy's EIA's data shows imports from Canada in decline and U.S. production falling since 2001. Canada has no ability to export more NG in the future under any circumstances. This will force the U.S. to compete for Liquified Natural Gas ("LNG") in the world export markets, and we all know what that means: The marginal supplier sets the price - and that's if we could get it, and we can't. The supplies aren't there, the infrastructure isn't there, and the MONEY isn't there. Think about it: This would mean that the U.S. would have to issue MORE IOU's to the various international energy suppliers; that the U.S. would be MORE energy dependent on the very folks we dislike and antagonize so intensely.

Oil and North American NG prices should move to BTU parity because:
1) increased LNG usage in Asia where they are paying $15 NG equivalent
2) Increased NG usage in NG exporters (Russia, Iran etc)
3) decreased drilling for NG in North America.

A) Coal prices have set a new floor for NG.
B) At 110 per ton (current prices) NG price floor would be $9.50 in the long run.
C) Coal prices could double from here easily with Australia's mines struggling.
D) Demand for coal is growing at 8% per year in the developing world (where the population growth is).
E) Nuclear plants have a long lag time and that situation is worse.
F) Slower drilling has not fully impacted us yet. 6-18 months for full effect of slowing Canadian and US drilling.

In addition, NG is simply the best hydro carbon fuel available. Coal is an environmental nightmare we are only now awakening to. Oil imports into the U.S. are unlikely to increase by any meaningful amount, and in fact could decline precipitously at exactly the same moment that NG supplies fall (and prices rise).

Folks, this is serious stuff. I cannot give specific advice in this forum, but the opportunities are staring you directly in the face. And not just the opportunity to profit, but the opportunity to avoid significant losses. The U.S. economy cannot expand without the ability to grow the generation of electricity.

What was the last thing Mrs. Lincoln said to the President?

"Duck!"

This is, yet again, another excellent opportunity for you to do the same.


Mentatt (at) yahoo (d0t) com