At Hollingsworth, we are continually striving to find new investment opportunities for our clients and this month, I would like to share with you one such new idea - Natural Gas.
In 2008, the price of natural gas reached a record all time high of $12 as oil also reached an all time high of $147 a barrel during the year. By taking 2006 and 2007 prices as a benchmark, natural gas prices traded at a normal range of between $5-$7 per Thousand Cubic Feet (TCF). By comparison, today's spot price for natural gas is only $2.70 (TCF) at time of writing.
In 2008, the price of natural gas reached a record all time high of $12 as oil also reached an all time high of $147 a barrel during the year. By taking 2006 and 2007 prices as a benchmark, natural gas prices traded at a normal range of between $5-$7 per Thousand Cubic Feet (TCF). By comparison, today's spot price for natural gas is only $2.70 (TCF) at time of writing.
(Source: NYMEX)
Fact 1 : Suppliers have a minimum production cost for natural gas of $4 (TCF) to breakeven.
The Energy Information Administration (EIA) which gathers the official energy statistics for the USA has stated that due to the low price of natural gas, working natural gas drilling rigs have declined by 58% since September 2008. That means that half of all production of natural gas has been stopped in the USA. As a consequence of this lower drilling, the EIA has stated that US imports of liquefied natural gas during 2009 will increase to about 500 Billion Cubic Feet from importation of 352 Billion Cubic Feet in 2008 and imports are expected to rise to 740 Billion Cubic Feet during 2010 to make up the shortfall. Therefore, US imports of natural gas from 2008 should more than double by next year.
The EIA has also stated that it expects natural gas prices to average $5.48 (TCF) during 2010 because of the current decline in drilling activity.
(Source: The Energy Information Administration - US Government)
Fact 2: Industries are securing natural gas supplies at much higher prices over the next two years.
From December 2009 to September 2011, natural gas delivery prices vary from a minimum of $5.04 (TCF) to a maximum of $6.95 (TCF). The USA's largest natural gas provider, Chesapeake Energy and another major USA natural gas producer Quicksilver Resources have both stated that prices are below their costs to produce and supply natural gas and confirm that this is unsustainable.
(Source: Clifford Krauss, The New York Times 20th August 2009).
From December 2009 to September 2011, natural gas delivery prices vary from a minimum of $5.04 (TCF) to a maximum of $6.95 (TCF). The USA's largest natural gas provider, Chesapeake Energy and another major USA natural gas producer Quicksilver Resources have both stated that prices are below their costs to produce and supply natural gas and confirm that this is unsustainable.
(Source: Clifford Krauss, The New York Times 20th August 2009).
The present natural gas spot price of $2.70 (TCF) clearly will not be weak for long and should appreciate as we head into the winter season when consumption of natural gas accelerates due to heating demand by households.
Fact 3 : Oil and Gas Prices Disconnect
Six Thousand Cubic Feet have roughly the same energy content of one barrel of oil. Therefore, if the fuels were perfect substitutes, oil prices would tend to be about six times natural gas prices. The historical norm shows that oil has usually traded between 5 and 12 times the price of natural gas. The historical average is actually 8 times. Presently oil is at $71 a barrel and natural gas at $2.70 (TCF). Therefore today the ratio is 26 to 1. This gap will eventually narrow through a combination of oil prices falling and natural gas prices rising. (Source: Donald Marron, Wallstreet Pit Global market Insight 21st August 2009).
Our research I believe shows that Natural Gas should be considered as part of a diversified portfolio. For further information as to how you invest in this and other commodities, please contact us for a no-obligation meeting.
Six Thousand Cubic Feet have roughly the same energy content of one barrel of oil. Therefore, if the fuels were perfect substitutes, oil prices would tend to be about six times natural gas prices. The historical norm shows that oil has usually traded between 5 and 12 times the price of natural gas. The historical average is actually 8 times. Presently oil is at $71 a barrel and natural gas at $2.70 (TCF). Therefore today the ratio is 26 to 1. This gap will eventually narrow through a combination of oil prices falling and natural gas prices rising. (Source: Donald Marron, Wallstreet Pit Global market Insight 21st August 2009).
Our research I believe shows that Natural Gas should be considered as part of a diversified portfolio. For further information as to how you invest in this and other commodities, please contact us for a no-obligation meeting.
Mark Hollingsworth, Director, Hollingsworth International Financial Services Ltd
Tel Cyprus: +357 99066840,
Tel Cyprus: +357 99066840,
Tel Malta: +356 21316298 / +35699842614
e-mail: info@hollingsworth-int.com
Website: http://www.hollingsworth.eu.com/
Authorised by the Malta Financial Services Authority to provide investment services, license IS/32457
Website: http://www.hollingsworth.eu.com/
Authorised by the Malta Financial Services Authority to provide investment services, license IS/32457
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