Canaccord on Natural Gas.... Natural Gas (NG : NASDAQ : US$4.09), Net Change: 0.07, % Change: 1.77%
Bull in a China shop. Canaccord Genuity’s Energy Team published a bullish note on natural gas calling the current price above
$4.00 as fundamentally supported and seeing future gas prices potentially being above $5.00 by 2014. Reasons for the bullish
stance include recent data which shows increasing evidence of notable U.S. gas supply erosion, partly attributable to winter
operating challenges, though it is also reflective of organic production declines. The energy team noted that the supply/demand
gap has closed. Per the U.S. Energy Information Administration, natural gas demand over the past year (25.6 Tcf) has now
surpassed total supply (25.5 Tcf). Therefore, if growth in natural gas demand continues to surpass growth in natural gas supply,
a supply deficit will open up and push prices higher. Also supportive of the price is drilling activity which in the wake of
extremely weak gas prices, cut natural gas-directed drilling by almost 60% to less than 400 rigs recently, which is solidly below
the ~575 gas rigs necessary to maintain long-term market equilibrium. But what is very noteworthy is that when supplydiscipline
cycles kick in, they last about two years if the 2007-08 and 2010-11 episodes are any guide. Therefore, the energy
team believes a “discipline-induced” supply deficit should build this year. Energy companies that are poised to profit from a
better gas price include big cap Encana (ECA) and Talisman (TLM), intermediate’s such as Peyto Exploration (PEY),
Bellatrix Energy (BXE) and Birchcliff Energy (BIR) and juniors such as Cequence Energy (CQE), Santonia Energy (STE)
and Donnycreek Energy (DCK). |
