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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (4007)	6/5/2001 4:26:34 PM
From: Raymond Duray	Respond to of 33421

Natural Gas Prices Hi John, Re: so the NG strip prices are indicating that we the market is seeing Natural Gas to be staying above $3.00-3.50 for the next several years I've been paying some attention to the fundamentals of this industry and I have to say that I view $3.00 as a pretty rock bottom floor for where prices are likely to be over the next several years. A number of factors will influence this. The fundamental one is that all the easy gas is found. Now we are off to deep wells in the GoM (Gulf of Mexico) and we are looking at McKenzie gas from northern Canada as well as the possibility of tapping the shut in Prudhoe gas. A friend owns shares in a trust that has proven reserves of 1 TCF in the Arctic Ocean, with no proven technology to extract it. The GoM reserves have been being depleted at a rate of 38% as of last year and next year are expected to be at 49%, essentially draining newly found fields in as little as two years. There is no large underexploited reserve left in the continental US. On the demand side, industrial use is about 38% of consumption. Electrical generation is at 21%, and rising dramatically. As Jim Donnell, of Duke Energy puts it, essentially 100% of all new electrical generation planned and under construction in the US is natural gas fired. So, the reserves that used to build during the summer highlandenergy.com may flatten out to supply/demand balance either this summer or next. As some who are wiser than me point out, this demand for gas is very weather dependent. A good, hot summer and natural gas spot and futures prices could have a heck of a spike. Perhaps not the extent that a cold winter might, but still, the market is prone to extremes of volatility. The most salient point about our natural gas supplies is this: Whereas the rig count is up to about 920 active rigs from the trough of somewhere around 600 during the 1998 trough, the increase in production since that time has been about 9%. Said another way, the new wells that are coming on are not as productive as the old wells they replace, and they are being depleted at a much faster pace, both due to lack of reserve and the necessity in deep water GoM production to extract the gas ASAP in order to pay for the $1 B.+ rigs that are necessary to exploit this resource. I see continued tightness in the natural gas market for the foreseeable future, with only the occasional respite like we're seeing now during shoulder season. JM2C, Ray :)