Shift to Liquids Is Like a Monet: Up Close, It's Just a Big Mess for Gas Supply
February 6, 2012
Checking the pulse of each major basin, we find that U.S. natural supply growth will likely be much more resilient than the market currently believes. Even though we are modeling a significant two-thirds reduction in dry gas related drilling, overall U.S. gas supply should continue to grow for the foreseeable future. Most interesting is the level of impact that associated gas production from oil and liquids plays will have on supply as operators flock to tap into non-gas options. Expect the recent surge of activity in oil/liquids plays and the Marcellus to translate to supply growth that should more than offset declines from dry-gas plays. We see significant forced gas production curtailments in the summer of 2012. At the very least, this should keep a lid on summer gas prices. At the worst, we could see a $1 handle on Henry Hub gas prices for the first time in decades. Thus, we are lowering our 2012 forecast from $3.25/Mcf to $2.50/Mcf and lowering our 2013 forecast from $4.00/Mcf to $3.25/Mcf. Long term, we are lowering our forecast from $4.50/Mcf to $4.00/Mcf.
This is a summary of a much more detailed commentary. Please contact your financial advisor for the full report.
There is no assurance any of the trends mentioned will continue in the future. Past performance is not indicative of future results. Investing involves risk and investors may incur a profit or a loss. Specific sector investing can be subject to different and greater risks than more diversified investments. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.
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