"The new report points out that quarterly results from the largest gas producers in the USA show a decline in production for the fourth consecutive quarter - 0.7% this last quarter and on a year-to-year basis, 5.1%"
I am sure that these figures are correct, but I am not sure that the Raymond James analysts are drawing the correct conclusions from them.
First, their sources of information only include something like 40% of the natural gas production in North America, albeit they are including the largest producers.
Second, the smaller producers have shown that they can increase production very rapidly when given the stimulus of rising gas prices.
Third, LNG becomes economically feasible at prices of $5-$6, and there are large supplies not currently being collected and sold in places like Trinidad.
Fourth, there are unexploited gas reserves in Alberta, and much larger ones (currently inaccessible by pipeline) in Alaska and northern Canada.
Fifth, there may be some incentive for major producers to restrain production in order to firm up the price; they may not be constrained by limitations of production capacity. This last point is just speculation on my part, but if OPEC can manage oil prices, I don't see why major producers of natural gas shouldn't wish to do the same thing.
For all these reasons, I would be unwilling to make a major reallocation of my investments on the basis of the Raymond James view. I continue to hold very large positions (for me) in natural gas, but this is for a long term (five-year and more) horizon, and also as a hedge against major disruptions of energy supplies by a war in the Middle East, from which NG would benefit. |
