The opportunity is now for natural gas buyers because front-month futures prices are likely headed to $8 before the end of the year, according to Paul Corby, senior vice president of Planalytics. Corby will be offering the market analysis behind his forecast at GasMart 2009, the annual meeting of major natural gas buyers and sellers coming up in Chicago May 19-21.
While over the last few months natural gas futures have been trading at lows not seen in more than six years, futures prices now have taken a turn to the upside and Corby's advice to buyers is to lock in supplies before it's too late.
"I think we've probably seen a bottom here in gas futures. I've been bullish for a long time here because I actually thought we got down too low in the first place," said Corby, who will be part of an energy trading and risk management panel. "I know we are brimming with gas and there are a lot of people out there thinking that we are going to see $2.50, but I have never been in that camp. Maybe I am one of the brave few, but I am long-term bullish on all commodities. That said, gas futures might come off a bit more, but I'm looking for $8 gas going into 2010."
Going forward in gas futures, Corby advised people to hedge now. "I want people hedging out through 2010 because you have to grab these prices," he told NGI. "Don't be greedy because you can really lose out and miss a decent price. Take the November-through-March winter strip. I advised people buy at $5.50 and it ended up dropping to $5.30, so people could have stolen another 20 cents. However, those who held out thinking it might get down to $5 lost out because today that strip trades at $6."
Corby said he has been predicting that futures would turn to higher prices for some time. "Since January I've been looking for a price turnaround to come in at the end of the second quarter," he said. "I look at things like money supply, GDP and velocity of money, as well as the fundamentals of natural gas."
Corby said his bullish stance is based on the belief that the much talked about summer liquefied natural gas (LNG) boom will in fact not be coming to the United States. "I don't think we will get the LNG that everyone has been talking about, mainly because the United Kingdom [UK] and Europe are taking it and the gas is not being liquefied as much as first thought. Nigeria and Algeria are not liquefying as much and Russia is not exporting as much as people think. Great Britain has built a number of terminals, so they are taking a lot of the spot cargoes.
"The global fundamentals are going to keep the LNG over there in my opinion, so I don't think the United States is going to get this huge flood that people are thinking about. I think those who think we are going to get 3.8-3.9 Tcf in storage at the end of the injection season are way off base. At the most, we might get 3.63 Tcf. Even though that would be a record, I think it is still a level that would push prices higher."
Corby also said the effects of the recent dramatic reduction in the number of rigs searching for gas in the United States will likely be seen sometime this summer. "We probably won't see smaller storage injections until this summer," he said. "Some of these producers -- like Chesapeake Energy for example -- have some legacy shale assets that they can drill right now at these prices and still make money. They have all of the infrastructure already in place and perhaps some long-term hedges, so they can still take the gas out of the ground. The profits might not be great, but they can drill and make some money. A lot of producers can't because they can't get the credit to put the pipes and other infrastructure in place."
The other thing to keep an eye on is when industrial production returns. "The industrials have been working through their inventory and will need to start manufacturing more as that inventory is depleted. The industrials will start manufacturing on a just-in-time basis, so where they might have been running at a 60% capacity, they are going to have to ramp up to possibly 75% to restock inventory."
While Corby's panel will pull together the trading side, ConocoPhillips' Will Hussey, Nexen's David Slater, and John Hattenberger, president of Gazprom Marketing & Trading USA, will discuss supply fundamentals. The executives will be on hand to give their thoughts on issues such as: how long will the oversupply last? what about rig count, shut-ins and LNG imports? and the shape of the market to come.
GasMart's 450 attendees will hear from these industry leaders and others in the conference program and then discuss the issues with other wholesale market participants in the Market Network Center at this 23rd annual conference and trade show, hosted by Intelligence Press Inc.
Greg Mocek, former director of enforcement for the Commodity Futures Trading Commission, will outline the newly developing regulatory landscape for futures, over-the-counter and derivatives markets. Mocek, now a partner specializing in energy, derivatives and government affairs at McDermott Will & Emery, will discuss "Loophole Carpet Bombing, Market Mutations and Trader Liability."
Larry Borgard, president and chief operating officer for utilities, Integrys Energy Group Inc., will lead off the program, discussing how distributors are reassessing strategies for today's energy market with its dramatic changes in energy prices, the credit markets and the stated policies of a new administration in Washington.
End users have their own panel presentation at GasMart led by Alex Strawn, purchasing group manager, North American energy for Procter & Gamble, and a companion meeting of the Process Gas Consumers Group. Those wanting basic trading and risk management information can attend separate workshops sponsored by BP Energy and NiSource's EnergyUSA.
Go to gasmart.com to see the full program and the attendee list so far. Register online and book your room at the GasMart headquarters hotel, the Sheraton Chicago Hotel & Towers.
Intelligence Press Inc. All rights reserved. The preceding news report
may not be republished or redistributed, in whole or in part, in any
form, without prior written consent of Intelligence Press, Inc.