Preparing For The Biggest Natural Gas Rally To Date $SWN
While the Natural Gas glut continues we have seen many of these companies expanding their liquid assets and it is these companies that have managed to continue to grow. Others have presented value pricing as they hit recent bottoms. These companies also have considerable upside linked to their natural gas heavy portfolios as prices do improve. But most don’t see this happening for the next 1-2 years below, the Sandridge CEO weighs in on the topic here. Smart investors will be looking for the start of the rally and will be able to benefit from the gains.
Speaking at an industry conference in New York on September 6, Southwestern Energy’s (SWN) CEO Steven Mueller, answering investors’ questions, shared his view on the natural gas industry fundamentals and future direction of gas prices. Mr. Mueller’s perspective is particularly interesting as it comes from the CEO of a leading pure play natural gas producer whose operated volumes represent over 3% of total U.S. natural gas supply.
With regard to the natural gas production trend, Steven Mueller commented:
“As I look at it in the future, generally I think production is going to stubbornly stay high for the next twelve to eighteen months. I don’t see much dip in the production. It has started to flatten out, and will stay pretty much flat for a while, before you actually see it tip over.”
On the demand side, he sees no sources of additional demand that would help turn around the over-supplied situation in the domestic natural gas market in the immediate term:
“For the next twelve months – all the demand, all the things you can use gas for, is being used today – so you will not see much more demand. Demand is approaching though that flattened production line, so it will continue to go towards that line.”
Looking beyond the twelve- to eighteen-month time frame, Steven Mueller sees a substantial step up in the end-user demand as additional gas-fired electric generation capacity starts coming online and consumption increases in the chemical, steel and other industrial sectors.
“As you go into 2014 though, there has already been significant decisions made, especially on the gas plants versus coal plants, that you are going to start seeing demand come in on the gas [-fired generation] side. And so I can see steepening demand in 2014, and you don’t have to have a supply response necessarily, as long as it stays roughly flat, to get back to balance. And to give a perspective on that, last year there is a little over 1 Bcf/d of decisions made to build gas plants over coal plants. Those will start coming on with about a two-year lag, so will start coming on in the end of 2013 and into 2014. This year, already 1.8 Bcf/d of decisions for new gas plants have been made. And if you look at public utility dockets, there is about 2 Bcf/d that will be made over the next twelve months, and I think about 1 Bcf/d will be made towards gas plants. So you have 4 Bcf/d demand increase just on [the natural gas-fired generation] side of it. And then there is 700-800 MMcf/d in announced new manufacturing plants, whether it’s Dow Chemical or US Steel or Nucor… So I can see over the next four years 5 Bcf/d increase. We have a 2 Bcf/d problem today. So as long as the production flattens out a little bit, by the time you get into 2014, you will start getting supply and demand back together.”
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