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Gold/Mining/Energy : Big Dog's Boom Boom Room

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To: quehubo who wrote (24174)	6/28/2003 2:11:24 PM
From: schrodingers_cat	Read Replies (1) of 206093

Hi Que, This looks a lot like '01 right? High prices are destroying more demand than anybody expected. Remember gas was under $2 that Oct. I remember RJ did a study of drilling economics and found that pretty much everything was profitable over $3.50. At 3 to 3.50 the economics went sour for most of the incremental drilling. I don't know if that still applies because it looks as if new gas wells are less productive. Medium term I think the equilibrium price should be over $3.50 to encourage flat out drilling and LNG imports. On the demand side a lot (?10%) of demand is from the chemical industry and of course chemicals can be imported from elsewhere. I think ethylene can be made from either natural gas or naphtha. I would concur that flat-out drilling is unlikely to do anything more than keep production flat.It looks like the resource assessments were wrong and that we are running out of gas here in the US. Equilibrium prices are all very well, but this market overshoots in both directions and somehow sub-$3 by Oct wouldn't surprise me.

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