Why are Natural Gas prices so low?
For reasons many of you may know, I’ve been following the NYMEX price of Natural Gas very closely for the past year or so. I’ve seen multi-years highs that made little sense to me…and as recent as yesterday we are seeing 7 year lows in the price of this “clean” fuel. SO WHAT IS THE DEAL, WHY THE BIG UPS AND DOWNS?
It seems like most commodities, the laws of supply and demand are determining the price of Natty Gas. I’m currently reading that stockpiles are nearly 19% above their 5 year average, and that demand is down. BUT WHY SUCH A DRAMATIC FALL?
That is where I see opportunity. I believe that the stick has swung WAY too bearish on natural gas, and that these current depressed levels create a buying opportunity. Yesterday I took a bit of IRA money and pumped it into the natural gas market, hoping that over the next 18 months we are able to see a much more historically normal spread between the price of oil and natural gas. Oil traditionally and historically trades around 8 times the price of natural gas (give or take a bit). CURRENTLY OIL IT IS TRADING AT 24 TIMES THE PRICE OF NATURAL GAS, and I don’t believe this will be sustained.
With the current President being bent towards this idea of “cap & trade” I believe that more and more producers of electricity and going to turn to natural gas more and more as a way to offset their coal fired plants. We will see though!
Just my two cents, I would love someone with some knowledge or a strong opinion on the subject to weigh in! Hopefully soon, before I commit more hard dollars to my Natural Gas theories!
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August 27th, 2009 at 11:48 am
Well I thought it was due to subsidy, a very interesting topic to debate on nonetheless.
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Cute Graphics Reply:
October 2nd, 2009 at 4:02 am
I had thought so too, very interesting indeed.
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August 29th, 2009 at 1:34 am
Man, I hope you’re correct on this one. We have natural gas fields in the family, and I’m always amazed at just how little they pay off, especially while my utility bills keep getting higher. I’ve always thought oil was inflated way higher than it’s actually worth and natural gas deflated way lower than it should be. Interesting stuff all around.
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Joe Reply:
September 3rd, 2009 at 9:40 pm
To Mitch:.
I (& family) also have some minreal interest in a gas field. What I (we) are receiving THIS year last year is off almost 50%.
I think someone “missed the boat” when they “devalued” natural gas. It SHOULD be touted as the clean energy of the future. Afterall, Obama is is constantly talking about green earth, etc. Here’s the way……use, convert lesser ecologically friendly “other” fossil fuel operating devices to…..NATURAL GAS.
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The Almost Millionaire Reply:
September 4th, 2009 at 12:32 am
Joe and Mitch,
For all our pocket books, I hope that there is some turn arounds in this Natural Gas deal, becuase I would love for this investment to turn into a huge home run!
The fundamentals are not there right now, but hopefully this is the time to buy…and ride out to the eventual upswing!
Thanks for your thoughts!
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September 2nd, 2009 at 12:01 am
I wish I had some thought to contribute on this, I am student majoring in Finance right, who has just started his 3rd year, and we are just now starting to learn about money and baking, corporate finance, things like that, so soon enough I will be able to comment =D I am definitely going to watch this trend more closely now though!
Till then,
Jean
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September 5th, 2009 at 1:36 am
I hope that there is some turn around in this Natural Gas deal, because I would like this investment to turn into a huge home run!!! maybe the government can control the price even better….
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Love Graphics Reply:
September 5th, 2009 at 5:51 pm
I think this really could happen, I guess we just have to wait and see.
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used tires Reply:
October 2nd, 2009 at 7:49 pm
@links of london, Governments controlling the prices of services and goods is not the way to do it… this only makes the market worse off.
Till then,
Jean
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September 5th, 2009 at 7:20 am
I’m watching it now too. Logically, it would seem that, in the long term, some kind of turnaround is bound to occur.
Just like you, I was looking for some answers and found a comment on a blog that seemed to make sense to me. For the life of me though, I don’t remember where I read it. I “think” it was somewhere on seekingalpha.com.
Basically, what the commenter said was prices are low because of supply and demand issues. As far as I remember, he/she said that there are over 100 natural gas companies competing with each other. Most of the companies became over extended borrowing money when NG prices were high and now must continue to produce in order to manage that debt. The overproduction is is leading to low NG prices.
I agree with you on the bearishly dramatic fall and have added FCG to my watch list.
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The Almost Millionaire Reply:
September 7th, 2009 at 11:38 pm
@Guzzo,
I’m glad you piped on on that! Sounds like basic supply and demand is at the heart of the issue…what I’m thinking is that with NG so low, and looking to stay low…it should seem that usage will go up…new power plants powered by NG and what not. Should pay off big over the next 3 years.
We will see my friend. Let me know if you hear anything else!
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September 8th, 2009 at 6:40 pm
Natural gas isn’t necessarily any more energy efficient than anything else, but it burns very cleanly. There is very little other than methane in natural gas, and methane combusts completely very readily.
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Robert Brown Reply:
September 8th, 2009 at 10:07 pm
I am for natural gas for exactly this reason, it burns more cleanly.
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The Almost Millionaire Reply:
September 10th, 2009 at 11:55 am
You both hit it! All things considered, why not burn a cleaner fuel? Makes sense to me! And it is readily available right here in North America! That fact alone should keep the prices down as there is not huge shipping costs to get it over here.
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September 19th, 2009 at 1:24 pm
One would think that gas should pay off sooner or later, and buying in when the price is down would seem like a good idea. Does the company pay any dividends at all. At least that way you’re still making money even if you have to hold onto the stock for awhile.
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The Almost Millionaire Reply:
September 19th, 2009 at 3:14 pm
It does not pay dividends, but I’m hoping the ST appreciation overshadows this fact. I like how you are thinking though, dividends offer a level of security in a crazy market.
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September 20th, 2009 at 12:17 am
Yeah, I’ve done some day trades and done pretty well at them, but I haven’t the fortitude to sell at a loss as for me shares are more long term. In the early days my portfolio existed of some of the riskier mining companies, some of which don’t exist anymore, and none of which paid any dividends. Now, I’m more into the blue chips that do pay dividends.
I still have some mining stock just in case they strike gold or something LOL
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September 25th, 2009 at 3:37 pm
I have to agree, prices have swung too far the other way, and I see no real government push to artifically keep them down, so I’m expecting them to rise again.
-Bill S
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September 28th, 2009 at 6:50 pm
Unemployment is definitely playing a role in Americans driving fewer miles. Less demand = lower prices. Great post.
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Love Graphics Reply:
October 2nd, 2009 at 4:04 am
Definitely makes sense. Hopefully the unemployment rates will drop in the near future.
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October 13th, 2009 at 12:14 am
Any word on this? Have you seen any turn around yet in natural gas prices?
I’m with sire on this one. I’ve always played the more conservative game with the stock market
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October 26th, 2009 at 7:48 pm
Just out of curiosity… do you think perhaps the weak dollar is having any affects on the prices of natural gas? That might be an interesting discussion…
Till then,
Jean
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The Almost Millionaire Reply:
October 30th, 2009 at 12:53 am
@Jean,
Great question, but it is hard saying. Natural gas is produced all over the world, so from that perspective I would suspect no…but the US is a big player in NG…so there could be an argument made there. Thanks for the prompt, I will do some research.
Peace,
TAM
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November 5th, 2009 at 6:50 pm
Gas is cheaper than petrol. In Poland i paid 1,5$ for liter petrol and 0,7$ for 1 liter Gas.
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November 13th, 2009 at 3:21 am
Great post!
I heard that is expecting the consumption of gas decline more this year driven by this big drop of demand of the factories.
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December 8th, 2009 at 1:49 pm
Definitely makes sense
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December 9th, 2009 at 12:33 pm
I am for natural gas for exactly this reason, it burns more cleanly.
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