Motley Fool
Look Out - Price Bomb Ahead

Monday, May 21, 2012


Because natural gas production affects all or part of many companies in the Sportfolio, pricing matters even if the stocks have individual catalysts.

With these issues in mind, Special Ops focused eyes and ears on the Benposium conference in Houston last week — an event hosted by none other than premier oil and gas data and analysis company Bentek. Computer brainiacs in their 20s matched wits with "I've-seen-it-all" gray hairs boasting 40 years in the business, forecasting that spot prices may drop as low as $1 this fall to as high as $8/mmbtu beginning in 2016. So much for confirmation bias!

Bentek's Rocco Canonica, director of energy analysis, and Logan Reese, quantitative analysis team lead, presented the dire situation. Despite plummeting prices, U.S. dry gas production has reached all-time highs — with a 2012 year-to-date average of 63.9 billion cubic feet per day (bcf/d). Meanwhile, the normal cycle of storage injection and withdrawal is cuckoo.

The Bentek bearers of bad news — Rocco and Logan — use 2006 cyclical patterns to find storage demand hitting one measure of peak on Sept. 14 and another on Oct. 12. Using 2011 patterns, the storage hits the fan two weeks earlier. Their modeling concludes that 528 to 851 bcf fewer injections and a 2.4 to 3.9 bcf/d tightening of supply-and-demand balance will be necessary to avoid hitting the wall. Remember that production this year is averaging 63.9 bcf/d. Five months — to mid-October — of oversupply of 2.4 bcf/d is 360 bcf and 504 for seven months nearing the end of the year. Five months at 3.9 bcf/d is 585 bcf and 819 to mid-December.

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