This is a good question.
Two parts to this: 1) A political assesment and 2) a pricing assesment.
1. Political assesment
To a large degree, the talk of price caps is politically oriented noise - sound like you are concerned, and the other guy (or party) isn't. Score points in the media.
I also expect that NG price controls will start from well over $10, since a high price is needed to cut consumption and encourage conservation.
My guess is Congress is tied up with other bills and activity, mostly Katrina/Rita relief and how to pay for it, until near Christmas recess. Any tax increase or cap would have to start from January then. Ex post Facto laws are explicitly prohibited by the Constitution.
What is most likely is heavy additonal funding of a program to provide funds to relatively poor people to help them pay the winter heating bills. Part of this also include providing insulation, weather stripping, etc.
Now here is an interesting twist -
The political risk depends heavily on MOTOR gasoline prices - since everybody in every state drives, prices which went much over $4.00 and stayed there for more than 3 weeks would be a problem. Gas under about $3.30 is mostly a problem for poorer people.
And poorer people don't vote as much (except seniors) and rarely make political contributions, and in most states they ar e less than 18% of the population and under 10% of the vote.
Now the Natural gas issue is much more serious, but it mostly will effect New England (New York and North), the MidWest (Ohio, Illionis, Indiana), and the Plains states - Dakota, Minnesota, Iowa, Nebraska. Since some of these states produce oil and gas, that tend to neutralize any anti-hydrocarbon activites. Dakotas, Pennsylvania tend to be fit that category.
Consumers in these northern states tend to get winter heating bills of $300- $1000+ . In upstate New York, say Rochester, January and February bills will often be larger than the mortgage payment.
These areas have been losing population and electoral votes relative to the West and the South, and most of them (especially New England) are blue states that did not vote of GWB.
Except for industry, much of the rest of the US doesn't care that much about Natural Gas prices. Yes, it's annoying to pay $180 for heating in South Carolina in January, but it won't stop most people from dinning out - they might order a cheaper wine, and stiff the waiter on the tip, however.
If you live outside Boston, and your bill goes from $600 to $1500, that's another kind of pain.
So in order for the cold states to have much chance of getting control on NG prices, they need much of the general public to be upset at oil companies, which requires higher motor gasoline prices.
You can bet that the major oil companies understand this, and for the refineries that have not gone to heating oil, they will have them making gasoline for a long time to keep the prices down and thus avoid the political fallout.
Also, it is pretty obvious what caused the problem : two Hurricanes. Congress may pass a law against Hurricanes...
My assesment is the chances of serious NG price controls are low, however, there may be something useful -efficent dispatch of NG based electrical generation, and some political window dressing that trims the February prices by 50 cents or so.
I don't know enough about Candian politics to comment on the risk up North.
2. Pricing
The Hurricanes have created a shortage in an area stretching from Houston to Mobile Alabama.
That's a long way from Canada or California, and there are a limited number of fixed pipelines with fixed capacities.
This means there will be large price differentials between the usual producing states of Texas, Oklahoma, Louisianna, Arkansas, New Mexico.
Look at www.enerfax.com to see many different prices.
Natural gas is fungible if the transportation is there - which it isn't, ha-ha ;-)
A good example of this was NG in Wyoming, which had $1.50 to $2.00 differentials (at $ 5.00 gas) until more pipelines were build going East and to Chicago (now there are 6) and a MUCH bigger pipeline, Kern River, was built to Califoria. Those differential really dropped with the new pipelines.
So moving out of XEC, XTO, CHK , etc. will most likely get you a MUCH lower upside from NG prices.
My conclusion is I'm pretty much staying with the US producers which don't have much offshore and are around Texas or close where they will get the highest prices.
Also, I don't think gains are over until a several days or even two weeks after next Thursday's gas storage report - if the build is under about 30 Bcf, we should see some panic. Might even get a net withdrawl.
After the report after next weeks, when it is still low, there will be the realization that the shortage will not go away, and prices will be high for months, so every portfolio will need more NG stocks....
Hello, $20 / MMbtu ! (Diabolical chuckle like Dr. Evil) |
