The surprise Northeaster blowing across the eastern United States may have confirmed the final bottom for hibernating natural gas and coalbed methane (CBM) company shares. The winter storm followed this past Tuesday’s Energy Information Administration (EIA) Short-Term Energy & Summer Fuels Outlook.
The EIA forecast higher natural gas prices, this summer, while spot WTI crude oil prices are expected to decline. “On an annual basis, the Henry Hub spot price is expected to average about $7.83 per mcf in 2007, an 89-cent increase from the 2006 average, and $8.11 per mcf in 2008.” The EIA expects summer 2007 natural gas prices to rise by 17.7 percent over the past summer. For this year, natural gas prices would increase by 12.8 percent over 2006.
The statistical arm of the U.S. Department of Energy cited, “Concerns about extreme weather conditions and rising prices in the oil market will keep upward pressure on the Henry Hub spot price during much of the forecast period.” The report pointed out that “electric power demand for natural gas increases during the summer cooling season.”
By the third quarter the EIA expects, “The trend will accelerate during the height of the cooling season.” The rest of 2007 bodes well for CBM and natural gas investors because spot prices are again forecast to begin a “climb toward a winter peak.”
The National Oceanic and Atmospheric Administration projection for heating and cooling degree days indicates an increase of 8.4 percent more residential consumption of natural gas during summer 2007. According to the EIA, there will be 11 percent more ‘gas –weighted heating degree days’ this summer.
On March 30th, natural gas storage levels stood at 127 Bcf below the comparable level a year ago. Last year’s storage surplus clobbered many of the CBM hopefuls in late spring and through the summer. This year, the storage story has begun to reverse. This weekend’s bad weather could result in another drawdown, and CBM company shares could jump a bit higher – as was seen in mid winter.
Coalbed Methane Stocks in Play Again?
In late January, BP set the pace for renewed interest in coalbed methane (CBM) by announcing it planned to invest $2.4 billion over the next 13 years to increase its share of ultimate recovery of coalbed methane gas from the San Juan Basin by an estimated 1.9 trillion cubic feet. BP spokesman Tony Hayward said, “This investment will allow us to continue the responsible development of one of the largest gas fields in the US.”
It is quite possible the unconventional gas companies could turn around during the EIA-predicted strengthening in natural gas pricing. Therefore, we are revisiting and more closely monitoring developments in previously featured companies with non-conventional gas assets. The more speculative coalbed methane (CBM) exploration and development companies appear to offer more leverage under this pricing climate.
Calgary-based EnCana (ECA) is the industry leader in unconventional natural gas and integrated oil sands development. As of December 31, 2006, the company had net proved reserves of approximately 12.4 trillion cubic feet of natural gas.
Denver-based Delta Petroleum Corporation (DPTR) engages in exploration for, and the acquisition, development, and production of natural gas and crude oil. Core areas of operation include the Gulf Coast and Rocky Mountain regions. What some believe could become a company-maker is the Columbia River Basin in eastern Washington. Delta has recently divested non-core properties to narrow the company focus. Gulf Coast is about conventional oil and gas, while the Rocky Mountain focus is on non-conventional tight gas sands.
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