Natural Gas

The Senate has just introduced legislation that will offer generous tax credits to the purchaser of a vehicle powered by natural gas. The proposed legislation also enable municipalities to issue debt for the purposes of building natural gas facilities. These incentives, assuming they are signed into law, should spur demand for natural gas.

The energy sector’s other major player - natural gas - has suffered a relentless downside slump recently. It’s been mashed so much that it’s given up all the gains it made for 2008. So what next? We may be nearing a final support area, as the charts have become very oversold and the hurricanes rumbling through the Gulf of Mexico are keeping many of the short sellers at bay for now.

Because of the significant decline in natural gas prices, we can expect lower electricity prices, and lower home heating costs this winter, and in fact it's already happening. From a USA Today story:

Here's a bright spot in an ailing economy: Electricity prices are falling in many areas.

• The sharp drop in natural gas prices and, to a lesser extent, oil prices is slashing electric rates across big swaths of the USA. Utilities in the Northeast, Texas, Florida, the Mid-Atlantic and California rely heavily on natural-gas-fired power plants to generate electricity.
• Natural gas prices have plummeted as the anemic economy has dampened consumption. Also, natural gas resources jumped this year as producers found ways to unearth fresh supplies embedded in shale rock.

Whether the hurricanes cause any real damage and disrupt supplies is yet to be seen, but it looks like we could finally be getting to a stable support area for natural gas.

Companies like Renewable Solutions Group, LLC, are currently still operating facilities profitably at lower than expected current Natural Gas prices and proving that a veritable windfall could result as Natural Gas prices stabilize, as is predicted to occur with Oil prices by the 3rd quarter of 2009.

For more information please visit http://www.renewablesolutionsgroup.com

At current prices, some of the newly formed natural gas companies have gone by the wayside and new drilling is almost at a standstill. That’s a far cry from the “boom times” when natural gas companies drilled a lot of new wells.

While there is plentiful natural gas supply, the inventory isn’t quite as high as it used to be and the price is very sensitive to economic conditions. So if the worst of the recession is behind us, natural gas futures should go along for the ride…

Natural gas isn't very clean, but its better than oil. If and when President Obama fulfills his pledge to implement a carbon trading scheme similar to that of Europe, many electrical utilities fill find their coal power to be expensive. Their cleanest alternative would be nuclear power, but you can't exchange fuels that radically different. In comes natural gas, easy to adapt to and cleaner than natural gas.

Though it will take some time, NGas powered vehicles are a logical next power source. Virtually all current gasoline stations are connected to natural gas- No distribution problem, NG is abundant and it's use would drastically reduce oil consumption. In addition retrofitting current vehicles to gas is doable. Many pluses in it's favor.

American natural gas production is rising at a clip not seen in half a century, pushing down prices of the fuel and reversing conventional wisdom that domestic gas fields were in irreversible decline.

The new drilling boom uses advanced technology to release gas trapped in huge shale beds found throughout North America — gas long believed to be out of reach. Natural gas is the cleanest fossil fuel, releasing less of the emissions that cause global warming than coal or oil.

Rising production of natural gas has significant long-range implications for American consumers and businesses. A sustained increase in gas supplies over the next decade could slow the rise of utility bills, obviate the need to import gas and make energy-intensive industries more competitive.

“It’s almost divine intervention,” said Aubrey K. McClendon, chairman and chief executive of the Chesapeake Energy Corporation, one of the nation’s largest natural gas producers. “Right at the time oil prices are skyrocketing, we’re struggling with the economy, we’re concerned about global warming, and national security threats remain intense, we wake up and we’ve got this abundance of natural gas around us.”

Domestic natural gas prices have already plunged 42% since early July, an even faster drop in price than oil or most other commodities, in part because the rapid supply growth has begun to influence the market (see chart above, prices have fallen to the lowest levels since early January 2008).^[1]

One more reason that inflation's not a problem: energy prices are plummeting. Natural gas has fallen by more than 42% in two months

1. ↑ http://www.nytimes.com/2008/08/25/business/25gas.html

( http://www.amprogram.com )

Prices as at May 14,2008 all Toronto listings

Birchcliff Energy ( BIR) $13.17 Vero Energy ( VRO) $ 9.48 up Peyto Energy Trust ( PEY.UN) $ 20.96 Accrete Energy ( GZ) $6.39 Pained Pony ( PPY. $7.50

If you look at the larger picture, LNG imports are down, the Hub is off line, imports from Canada are lower than a year ago and we're not short of storage gas. Supplies of LNG, or liquefied natural gas, to the U.S. may fall by 35 percent in 2008, investment bank Tudor, Pickering, Holt & Co. said recently, reversing a forecast that shipments will rise. LNG is gas that is chilled to liquid form at minus 161 degrees Celsius (minus 259 Fahrenheit) for transportation by ship to destinations not connected by pipeline. Canadian production in April averaged about 16.3 billion cubic feet a day, about 680 million cubic feet a day below a year earlier, Martin King, an analyst at FirstEnergy Capital Corp., said in a May 5 report.

Canadian ( lack of ) Production is Bullish He forecast Canadian output would average about 850 million a day less for this year, reducing the amount available for U.S. import.

Questerre said ( July 17th )that its operator has commenced work on the first horizontal well on the Yamaska permits in the St. Lawrence Lowlands, Quebec. The operations involve re-entering the existing St. Louis de Richelieu well and drilling a horizontal leg. This well was drilled last summer with Gastem as the operator, targeting the Utica shale horizon. Subject to the final drilling results, the well will be fracture stimulated and tested.

On the Yamaska permits, Denver-based Forest Oil is now the operator and 60% owner, Questerre 20% owner, Gastem 15% owner and Epsilon (EPS) 5% owner.

Results from Forest Oil :

On April 1, Forest announced following positive production tests with results of up to one MMcfe/d of gas from two wells (one on Gastem’s Quebec acreage), that it plans to drill three horizontal wells during 2008, commence first production during 2009, and continue on with full-scale development during 2010 on its acreage on the St. Lawrence Lowlands in Quebec. Forest is also partnered with Junex in the St. Lawrence Lowlands.

Tal;isamn Drilling on Questerre leases

Staying in the highly-prospective St. Lawrence Lowlands unconventional gas fairway, Talisman (TLM) will be drilling three vertical wells on Questerre’s land to earn-in on the property, and plans to drill a total of 15-20 wells between now and the end of 2009 to more fully evaluate the area’s potential.

Gastem ( GMR) Gasterm is partners with Forest Oil, Epsilon Energy in the Yamaska permit of the St. Lawrence lowlands. Ana analyst with Fraser McKenzie picks both Gasptem and Questerre as having properties in the " sweet spot " of the play. He rates them both as " buy ". Ruus of Northern Rivers has a $190 target on Gastem. Peter Hodson ( Sprott Asset Management )on BNN TV said Questerre could be a 40 bagger in the next five years - 40 times today's price .

Sprott Asset Management - is already there in a big way

Eric Sprott says his firm started accumulating the stocks six months ago. he is quoted in the article as saying : " It could be a very large gas discovery for Canada and Quebec." Quebec now imports gas from western Canada and an infrastructure of pipes is relatively close to the exploration area.

Sprott Asset Management through its funds owns :

Gastem ( GMR) 14 % Questerre 1 ( QEC) 15 % Altai Resiources ( ATI) 13 %

Crude oil is trading at 26.4 to 1 against natural gas. This divergence is at an all time high. History dictates that either crude will go down, or gas should go up, or both.^[1]

1. ↑ Bloomberg article on Oil-Gas Ratio, 8/25

The Basics are In Place ( June 14,2008 )

Inventories Reduced below Average Weekly Build below Average Commodity Price Rises - fears of too little supply for the coming winter

Natural gas in New York advanced after a government report showed inventories gained less than analysts expected :

Supplies increased 80 billion cubic feet in the week ended June 6, to 1.886 trillion cubic feet, the U.S. Energy Department said in a report. Analysts forecast an increase of 90 billion cubic feet. The average change for this time of year over the past five is 98 billion cubic feet. If the summer is as hot as the previous week, the opportunity to put 3.3 trillion cubic feet into storage for next winter ``may be slipping way, George Hopley an analyst at Barclays Capital Inc. in New York, said in an interview before the report.

The five-year average inventory level at the start of winter demand on Nov. 1 is 3.327 trillion. Natural gas for July delivery rose 13.8 cents, or 1.1 percent, to settle at $12.798 per million British thermal units at 3:06 p.m. on the New York Mercantile Exchange. Futures were trading near $12.70 before the weekly report at 10:35 a.m. in Washington and have risen 71 percent this year.

Traders are Buying and Holding

``We're heading into a weekend. Traders don't want to be short because there's a much greater chance of an explosion up than an implosion to the downside, said Michael Rose, trading director at Angus Jackson Inc. in Fort Lauderdale, Florida. ``They're buying and holding on. Near-record temperatures moved across the Midwest and Northeast last week, prompting increased use of electricity from gas-fired power stations to run air conditioners, reducing the amount of gas available for storage.