Truth be told, I’ve been looking forward to it for months.
It wasn’t that the task was easy, mind you. I watched with jealousy as a neighbor finished the job in minutes with a snowblower. No, it was the fact that I’ve been waiting for some sign of winter.
You see, there’s a reason I’ve been waiting for a storm like the one that hit over the weekend. During the last several months, there just hasn’t been much excitement for natural gas. After watching natural prices sink lower and lower, it’s about time for some good news.
So, now that Baltimore cars are finally entrenched in snow along the street, are we finally going to see the comeback we’ve been waiting for?
Unfortunately, the answer is still no.
That’s not to say the brutally cold weather didn’t have an effect. Prices nearly reached $6/Mcf late last week, now that winter has officially arrived…
The rally didn’t hold for long.
The problem — as we already knew — is oversupply.
Despite last week’s decline in underground storage, the fact remains that storage levels are still 12% higher than a year ago, and 14% above the 5-year average. As you can see below, we’ve been well above the 5-year average range:
Sadly, one weekend of snow won’t cut it. But let’s be honest, were we really expecting to see a sudden reversal from just one bad storm in the Northeast?
I didn’t think so, either.
Exxon Took My Bet
Most of you will remember Exxon’s unconventional gamble from last week. If nothing else, Exxon’s $31 billion deal to buy XTO Energy showed us that these shale gas producers how important these shale plays will be in the future.
It makes sense, right?
After all, unlocking the shale gas was one of the reasons why U.S. production exploded in 2008.
To recap quickly, let’s take a look at what Exxon gained in the transaction:
With a domestic reserve base of more than 2 billion barrels of oil equivalent, XTO is one of the largest independent oil and gas producers in the U.S.
Average gas production increased by 23% during the first nine months of 2009 to 2,421 MMCF.
The transaction gives Exxon significant exposure to various shale areas across the U.S., including the Haynesville, Marcellus, and Barnett shale plays.
There’s no doubt that Exxon is betting long with XTO.
However, I have my sights set on more unconventional plays than XTO. I’ll get to that in just a second, because there are other reasons to be bullish on a natural gas comeback…
We’re far from out of the hole in terms of a recovery, but that doesn’t shake our long-term sentiment. Most analysts agree that demand will recover in 2010, which means tapping into U.S. shale gas is inevitable.
For starters, less natural gas is available from outside the country. Natural gas imports from Mexico have all but dried up. But Mexico is having enough problems with Cantarell’s decline. In September 2008, Mexico sent us 12 times more natural gas than it did this year.
Canada isn’t faring much better.
As our largest outside source for natural gas, Canadian natural gas production is struggling. I’ve talked about Canada’s trouble with peak natural gas recently. The Western Canadian Sedimentary Basin, where Canada produces the vast majority of its natural gas, peaked approximately eight years ago.
One Natural Gas Stocking Stuffer for the Holidays
I think Exxon is just the first company to make the jump into shale gas — with many more to follow. I’ve long felt that natural gas will take over oil’s spot atop the energy stage.
After all, it’s one of the few resources we have in abundance in the U.S. My readers know already know the U.S. is sliding down the backside of the peak oil curve. And don’t let the latest news fool you. It’s true that U.S. domestic oil production increased last year for the first time in decades. However, most people don’t take the time to look into the detail.
There’s only one last bright spot in U.S. oil production, and it won’t be enough to keep up with our overall decline rates. (By the way, if you’re interested in learning about one company that’s about to make headlines in this new prolific oil play, simply click here for more information.
A transition to natural gas to natural gas makes perfect sense.
But don’t think for a second that you missed the boat on this one…
When demand returns, one clear winner will be Range Resources (NYSE: RRC).
Range has posted 27 consecutive quarters of production growth, with a year-over-year target of 14% in 2009. Furthermore, this company was the first to drill a commercial Marcellus well back in 2004 — so they’re no stranger to shale gas. They’re definitely worth your due diligence.
I always tend stick with the experienced players. Members of the $20 Trillion Report, for example, have been trading these shale gas stocks with tremendous success for years; and I would be remiss if I didn’t offer Wealth Daily readers the same opportunity to invest in the next round of shale profits.
My colleague Steve Christ often says, "It’s only a matter of time."
I couldn’t agree more.
Until next time,
Keith Kohl
