With natural gas demand and prices falling and U.S. inventories at their second-highest levels ever, gas exchange traded funds (ETF) are still looking bullish, according to Tom Lydon, a Newport Beach, CA-based investment consultant with Global Trends Investments.
Quoting industry sources, Lydon said forecasts for natural gas are down or lowered as the "supply-demand ratio is well supplied and U.S. [gas] inventories have surged. Worldwide, and in the United States, there is plenty of natural gas for consumers and consumption will drop by 1.3%."
Even though the summer brings the prospects of increased gas demand for electric generation to satisfy retail cooling loads, that "might not be enough for price recovery anytime soon," said Lydon, noting that inventories are well above where they usually are at this time of year.
"The outlook overall seems to be optimistic, though," he said, citing the U.S. Energy Information Administration (EIA) as expecting overall gas consumption to fall 1.3% this year and rise 0.4% next year. "Henry Hub spot prices averaged $4.65/Mcf in February, and they are expected to average $4.67/Mcf in 2009, and $5.87/Mcf in 2010."
Lydon is also bullish for gas ETFs because he agrees with projections calling for 79% of the U.S. energy supply over the next two decades still coming from a combination of natural gas, oil and coal.
Obama administration efforts to reduce dependence on foreign oil and the recent Royal Dutch Shell-Gazprom announcement on imports of Russian liquefied natural gas to the North American West Coast both support the need for increased natural gas imports, Lydon said.
"Importing natural gas raises the bar for the environment, making natural gas-fired power plants even more competitive with dirtier coal-fired plants. And it would also widen the cost advantage natural gas plants enjoy over renewable energy, such as wind and solar."
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