Natural Gas

Today, December 1st, 2008, the NBER announced that the U.S. is in a recession, making what everyone already knew official. This has two implications. First, the news that we're in a recession is likely to cause manufacturers to cut back production even more than they already have, reducing demand for energy (and, thus, natural gas). Furthermore, contracts for natural gas prices are likely to fall even lower than they normally would because of the compounding effects of real production cuts and expectations of such production cuts. Of course, once prices have hit their floor, they'll present a buy opportunity, but it may be prudent to divest for now, given that economists have predicted that this recession will be shallow but prolonged, rather than sharp and quick.

September is the lowest-demand month for natural gas, and it's also the lowest-demand month for power. September is maintenance season for power plants all over the country. You also have industrial demand, which is about 30% of total gas demand. Refining is a big portion of that, and September's also refining turnaround season as well. So gas demand's going to be very, very low, which is just going to exacerbate the issue. So if it does happen, and we do run out of storage, it could drive natural gas to $1.00 or even lower ^[1]

1. ↑ "Chris Jylkka: Rough Times Ahead For Natural Gas" Article from Hardassetsinvestor

Natural gas will eventually hit a bottom, as it’s an in-demand natural resource that will be around for a long time. We just have to wait patiently for the turnaround, as the market grapples with high underground storage supplies.

The green revolution has begun, and natural gas is only a short-term substitute until green, renewable technologies like solar power and wind power become more cost competitive. The time horizon is uncertain, but every year those technologies are becoming more efficient, and the billions of dollars being poured into research make it likely that the trend will continue. Although natural gas is cleaner than oil, it still produces some carbon dioxide and more methane than burning oil. Methane is a much more potent greenhouse gas than carbon dioxide, meaning that natural gas isn't as clean as it was always thought to be.

Industrial demand for gas is forecast to drop 8 percent this year, due to plants shutting down or reducing production capacity because of the recession, according to the Energy Department. Factories and power plants account for about 60 percent of U.S. gas demand. Also, if heating demand this summer remains sluggish, without any major disruption from this coming hurricane season, natural gas inventories may rise to an all-time high before the winter, when demand picks up for winter, keeping prices stable and relatively low.