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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: quehubo who wrote (20182)	3/12/2003 11:50:31 PM
From: schrodingers_cat	Read Replies (4) \| Respond to of 206131

Some thoughts: This thread is about oil and gas industry stocks. 99% of the discussion is about the oil and gas part, but few people ever discuss the stock part. The general attitude towards equities is important. What makes an equity worth more than the paper it's printed on is the belief in the system it represents. People used to have absolute faith in that system. That faith was destroyed by Enron, WorldCom and Arthur Andersen and can never be completely rebuilt. One reason housing is doing well is that people can see and touch houses and they have absolute faith in the system of property rights. This isn't true for stocks Add to that the huge boom bust cycle that the market went through. In 1999 equity risk was perceived as zero, in fact the risk was in not being in stocks. Today that perceived equity risk has gone way up. Neither factor is going away any time soon. Things are not going to go back to the way they were in the late 1990s. No matter how well the underlying industry does all stocks are swimming against the tide. Will the oil service industry do well? One way to explain the supply drops is that large parts of North America are running out of natural gas. The result is higher prices and more rigs drilling into the ground and yet the supply keeps on dropping. A lot of people are saying that they are short of prospects. If we're running out of gas then the oil service firms in the US will go broke no matter how high the price of gas goes. Many of the E+P will follow although those that still have gas will do very well. Is there another explanation? Perhaps there aren't enough geologists around generating new prospects? Did the cutbacks of the 1990s wipe out the people who were working on the next generation of plays? Is there lots of gas in places where current technology can't see it or where it is not economical to produce? I don't know the answer but it is obvious that something is going badly wrong with US gas supplies. Another problem for the service companies is how can the E+Ps make long term investments when they have no idea what the gas price will be in 12 months? The kind of price volatility we have seen lately makes long term investments hard to justify. The US invasion of Iraq is causing a lot of uncertainty about the future direction of oil prices and the economy. It's much simpler for the E+Ps to just sit back, take the money, and pay off their debt. Better for their stockholders too. I think what will happen in the end is that gas demand will go down. Prices will probably go much higher than the $10 we saw in 2001. The chemical plants that use NG will shut down and the chemicals will be imported from overseas. Utilities will start building coal plants to replace natural gas ones, and the IPPs that invested heavily in NG generators will go broke. Residential and commercial customers will turn down their thermostats because they simply can't afford the heating bills anymore. Eventually LNG from overseas will fill the gap and bring prices down, but by that time the gas market is going to be a lot smaller.