About Me

Retired chief investment officer and former NYSE firm partner with 40 years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Wednesday, January 18, 2012

Natural Gas Price

Well, if you've been watching, the price has been in free fall lately, as seasonally high levels
of supply have collided with very seasonally low levels of demand. At $2.47 per mcf, gas is
now likely being priced below all-in cost, so more producing wells will be shutting down.
Shutting in gas wells must be done with great care. It is a time consuming process. So, bringing
supply under control takes time. Even so, since this important resource is at a discount to
cost and since gas is trading nearly 40% below its 200 day m/a, I am in patient long side
accumulation mode with the idea in mind that gas will hit $5 per at some point over the next
18 months.

It is not easy to make money trading gas. I have generally done fairly well buying it below $4,
and with this latest speedy downdraft, gas is as cheap as it has been for a number of years.
there are players out there who will follow, but not likely until gas has turned and entered a
short term uptrend. Fair enough, but since I intend to be patient with this position, I am
doing some now, and for a lark, am using the gas ETF, UNG. Both gas and UNG are displayed
here.

1 comment:

Rich said...

A mild demur. Natural Gas wells, in most cases, have a decline rate of ~60% in their first year. Gas wells are far less profitable to drill than oil wells, so any rig that can is being switched toward oil prospects.
Aubrey McClendon of Chesapeake (talking his book)closed out all of CHK's hedge book last quarter on the expectation that less drilling will cause reduced supply by the end of the year. Another, similar view is expressed at - http://energy-musings.com/node/281

The opportunity (or problem?) is in gas stocks, which are perpetuities that are priced off a spot commodity.