Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: quehubo who wrote (24174)	6/28/2003 10:16:21 AM
From: jim_p	Respond to of 206093

que, If industrial users such fertilizer plants and petrochemical plant believe that we are now in a period of sustained NG prices over $4-5.00, that demand for NG will be permanently lost. Plants will close and move overseas where the feed stock is a lot cheaper. 90% of the cost of fertilizer is NG. It doesn't take long to justify moving production overseas. Back in the late 70's, they were building skid mounted fertilizer plants that would be mounted on barges and sent to foreign and offshore production that in many cases the NG was being flared or sold dirt cheap. Both supply and demand for NG is just a function of price. The longer the up cycle, the longer the down cycle. Jim

To: quehubo who wrote (24174)	6/28/2003 2:11:24 PM
From: schrodingers_cat	Read Replies (1) \| Respond to 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.