Tuesday, March 31, 2009

Interesting Interview About Natural Gas Prices

I read an interesting interview today with a commodities analyst Michael Hall of Stifel Nicolaus. It's a good read and not too technical.

The bottom line, says Hall, is that you can't predict future prices but he believes that natural gas prices will start increasing in a sustainable way in the fourth quarter of 2009. That assumes there are no unexpected circumstances like a warm winter or geopolitical strife. He thinks the reduction in supply and the significant reduction in rig count will lead to lower prices. He notes that when the prices do increase it will be harder to re-mobilize idled rigs that it was to lay them down in the first place, so there will be a lag time where prices increase and companies can't get the resources out of the ground fast enough.

The real issue is finding the bottom of the recession and building from there. For crude oil, he sees long-term demand drivers in China and India, each of which have very low resource consumption per capita (approximately 8% that of South Korea and Japan). If that consumption ramps up, even just a little bit, the corresponding increase in demand will be significant. But he doesn't expect that kind of growth from the developing world until the developed world, especially the U.S., gets its act straight.

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