Natural gas dropped after a change in the weather forecast from colder than normal to warmer than normal temperatures. And while the front end of the curve may be influenced by what should be around a 160bcf withdrawal from supply, the long end is where the debate lies.
That gets traders more and more exciting. While I am on record for a target of $7.00 by 2015 along with others like the Bank of Oklahoma and Barclays, a story in today's Wall Street Journal has a less bullish outlook but bullish none-the-less. The Journal says that, "U.S. natural gas production will accelerate over the next three decades, new research indicates, providing the strongest evidence yet that the energy boom remaking America will last for a generation.
The most exhaustive study to date of a key natural-gas field in Texas, combined with related research underway elsewhere, shows that U.S. shale-rock formations will provide a growing source of moderately priced natural gas through 2040, and decline only slowly after that. A report on the Texas field, to be released Thursday, was reviewed by The Wall Street Journal.
The research provides substantial evidence that there are large quantities of gas available that can be drilled profitably at a market price of $4 per million British thermal units, a relatively small increase from the current price of about $3.43.
The study, funded by the nonpartisan Alfred P. Sloan Foundation and performed by the University of Texas, examined 15,000 wells drilled in the Barnett Shale formation in northern Texas, mostly over the past decade. It is among the first to study the geology and economics of shale drilling, a relatively recent development made possible by hydraulic fracturing, or fracking, in which a mixture of water, sand and chemicals is pumped at high pressure into rocks to release gas.
Looking at data from actual wells rather than relying on estimates and extrapolations, the study broadly confirms conclusions by the energy Industry.” A must read in the Journal for sure.
Yet I wonder if they are accounting for the expectation of a major boom in U.S. natural gas exports. In the U.K. a different story, due to the high price of natural gas in Europe, gas use is at the lowest level since 1996 and coal use the highest since the same year. It is this price discrepancy and the fact the U.S. will become a major exporter that has kept my outlook more bullish. Now, even if the U.S. bans exports, cheap gas should cause an even larger demand explosion as business and manufactures around the globe will flock to the U.S. for our dirt dog cheap natural gas.