TOD POLL: Where Will Natural Gas Close a Year From Now?

This site primarily discusses crude oil, its ubiquitous role in transportation and underlying reasons for its 9 year price climb. Less frequent but almost as important are discussions about its invisible cousin, natural gas, which fires a meaningful % of our electricity, and serves as the feedstock for plastics, fertilizer, and various other important social goods, like diapers and milk jugs. Following a dramatic price spike after Hurricane Rita, we've encountered 2 mild winters and no hurricane problems - natural gas markets have been quite docile of late. Here is a POLL and open thread to discuss natural gas prospects for 2008.

Jean Laherrere - US Natural Gas production and producing gaswells. Click to enlarge.

Here is a monthly chart of the CURRENT front month natural gas contract (Feb of 2008)

monthly Nat Gas price Feb 08 contract

Here is the recent trading history (daily) of this contract:

daily Nat Gas price Feb 08 contract

Here is the Feb 2009 contract which WILL be front month a year from now - as can be seen, it is $1.5 higher than the current front month contract, which implies the aggregate dollar vote is that the supply/demand situation will be tighter one year hence.

weekly Nat Gas price Feb 09 contract

What say you TOD readers?

Here are the POLL choices:

1)Above $20 per mcf
2)Between $15 and $20 per mcf
3)Between $12 and $15 per mcf
4)Between $10 and $12 per mcf
5)Between $8 and $10 per mcf
6)Between $6 and $8 per mcf
7)Between $4 and $6 per mcf
8)Between $2 and $4 per mcf
9)Below $2 per mcf

Please offer relevant links, references and opinions below after your vote.

In Maine, natural gas fuels something between 2/3 and 3/4 of our electricity. The biomass power, I understand, is being exported out of state - probably so people in CT can say they are buying "green", even though a chunk of that "green" power is burning trash in my backyard.

[How does that work? This KW is green, that one is coal?]

Any chance Jean, that you can clean up the labels on the axes? Esp on "weekly Nat Gas price Feb 09 contract" it's a little hard to parse.

I'm surprised, by looking at that chart, that electric rates in Maine have been going up so much of late while the fuel is more or less stable since the increase in 06. Then again, anyone that's looked at a power bill since deregulation and can figure it out might tell me otherwise. I've cut my KW use close to half and not reduced my charges much over that period.

cfm in Gray, ME

Jean is in France, and probably sound asleep and completely unaware Ive posted one of his graphics!

The charts are various timeframes on the x-axis with price in dollars per mcf on the right axis.

Sorry for the different sizes and shapes - I need to find better way of putting price graphs here.

jun06, sep06, dec06 or 2006-06, 2006-09, 2006-12 would work for me; it's the jumping of units that distracts me. Maybe just me.

I'm not sure there is a lot of information in date vs price. Date is sort of a place-holder, corresponding to a much more complex world. Off hand, could you do something like "price vs %draw/reserves" or "price vs demand/supply"? How does one chart volatility? Hmmm, I have a whole DVD lecture series on that - perhaps I should do my homework and study it. Too many fish to fry. [How's that for a metaphor our children will not understand?]

cfm in Gray, ME

Does anyone have a quick high-level breakdown of nat gas usage by demand type over time? electricity, heating, manufacturing feedstock?

I suspect that if this country does enact meaningful greenhouse gas emission controls, Nat gas demand would definitely increase for electricity production, which could be easier to switch-over than heating systems.

According to, in 2002, industrial use was 32% electricity was 24%, residential (mostly home heating) was 22%, commercial was 14% and other was 8%. I assume that commercial has been going down since then as plants have moved offshore. source

I'd be curious what % of industrial is oil refining - I think the % is in double digits, and growing. The tiger eating its tail...does anyone have those stats?

Or if we extend the boundaries to all of North America, how much Nat Gas is being used in the Oil Sands?

The question goes a lot deeper than the volume for the tar sands. That volume is increasing, Canada's NG production is in serious nationwide depletion and expansion of the tar sands development is continuing, and through all that, Canada has a commitment under NAFTA to export at least some minimum volume. I would expect their export volume to wane with no serious reaction from the US since the perception is that we need their oil from the tar sands more than we need their gas.

There is good data on prices at this web sit
Right column.

Here's another useful set of price data:

BTW, given the infrastructure costs of LNG production and delivery, I don't see how it can be landed for less than $7/mmBTU:

redundant and so deleted. Joe

//Does anyone have a quick high-level breakdown of nat gas usage by demand type over time? //

Monthly data downloadable in Excel.

I'm just shooting from the hip here, but i figure that nat gas prices will generally stay the same for 2008, and will probably hoover in the $5 to $8 range for the whole year, UNLESS a hurricane takes out some infrastructure this summer, or a another war.

My guess is:

4)Between $10 and $12 per mcf

Canada will be using more and exporting less. LNG will come online for power plants, but cost a lot. Exploration and development will lag, because the price is not as high as it was.

I agree with 10-12, but I know much less about Nat Gas markets, production, and global supply than oil.

The current natural gas price of about $7.50/mmBTU is quite cheap relative to the going price for oil. Using the converion factor of 6:1, this gas price is $45/barrel of oil equivalent, less than half that of oil. At the current pricing, there is a huge incentive to convert gasoline cars to run on CNG, which BTW is the latest venture of T. Boone Pickens. In many parts of the world, the price of pipeline gas and LNG is tied to the market price for oil. Because North American natural gas production is now in terminal decline, increasing amounts of LNG will need to be imported to fill the gap. I believe it is inevitable that the price of natural gas will reach some sort of BTU parity with oil in most markets over the next few years.

Because I see oil reaching $120/barrel this year, I guessing that US natural gas will double in price to $15 this year. Even with this doubling, it will still be quite discounted relative to oil. A doubling of natural gas prices will put severe upward pressure on electricity prices in a lot of states.

Amaranth Advisors lost some $6.5 billion on natural gas bets gone wrong, but that hasn't stopped hedge funds from wagering $3 billion on the volatile commodity over the last 10 months, Bloomberg News reports. Citadel Investment Group, T. Boone Pickens and the Merchant Commodity fund are just some of the energy investors to pour money into the sector, expecting a big rebound. In fact, Citadel picked up some of Amaranth?s bad trades, which ConocoPhillips analyst Jim Duncan estimates could be in the money already.

'If you told me I had to go long or short today, I would go long,' Pickens told Bloomberg, which reports his hedge fund is up 120% this year. Experts expect a favorable turn for natural gas, with demand expected to rise 3% in the U.S. next year, coupled with tightening supplies worldwide.


Where is this huge natural gas crisis everyone was talking about just a few years ago? (on this site and others) Oh I know, it's NEXT winter, not this winter, but NEXT.

Good reminder homebrew. I dont think you get the point. There is so little difference between a crisis and total lack of one according to this market. If we were 400-500 BCF lower in storage right now, which is 7 days worth of average usage throughout the year things would look gruesome. So effectively 1% of a our yearly usage out of the equation can create ripples. I am betting gas production goes down 5% this year. My price forecast for the years highs is $12-$18.
I am betting the farm with canadian natural gas drilling trusts and peyto energy trust.

A NG insider years ago told me that the difference in North America between a NG glut and a shortage is 2%.

A NG insider years ago told me that the difference in North America between a NG glut and a shortage is 2%.

Doesn't that apply to almost any key stuff that people use? Water, food, motor fuel.

You either have 'enough' ... or not! It's almost binary.

I agree about Peyto, I bought it in increasing numbers from 23 down to 16, against the rules to average down but I have a soft spot for them (and the dividends) I have not found a more reasonable company.

pls explain

why are you 'betting the farm' by investing in a trust? there is no equity upside in a trust if nat gas skyrockets -just higher dividends, yes?
If you wanted to bet - buying some small EP names or nat gas futures would give you a higher return (with higher risk, true)

I also own 1 mini NG futures 2012.
Peyto is being valued at less than $10 a barrel of oil equivalent in the ground. I expect by 2010 oil will be at $200 and NG will be at parity or about $35. Peyto could easily go up 10 fold in this time frame. Plus it will at point be paying out yearly dividends close to current share price. I get paid to wait and I think its appreciation will outperform GAS/OIL E and P's. A lot of the gas only E and P's trade more closer to NAV than Peyto. If you look at Peyto's discovery record it beats almost any E and P company. Plus I am betting on a reversal of Canadian trust rules. So Peyto has a lot going for it and I get paid to wait.

That may be a $17 a share trust. But it started out just a few years back at 9 cents. I dont think many E and P's can beat that.

please email me privately at

I would like to ask you a couple of questions.

Thanks, Blair

why shouldn't higher dividend expectations affect the share price of a trust?

The drilling trusts are even a better bet. Just picked up one the other day. Current dividend yield was 40%!. So market does not expect it be sustained. I do.All it has to do is sustain is divi and I think I will beat most E and P's.

Although it is OT, would you be willing to unveil the name of your drilling trust?

Builders energy trust. I bought it for 2.97 a few days back.It has had a nice rally to 3.60. 72 cents current dividend. My only concern was whether they can survive this downturn. If they do then and I think they will then it was extremely compelling at that price. Plus tangible book value was $4.50.
Available OTC here if you interested. Trailing dividend yield is about 40%. I expect that to be paid in 2008 and 2009 although current divi is lower.

Well, the New York spote price for natural gas has done some pretty bizarre things. Right now it is listed as 16 dollars per million BTU over on Bloomberg, which is over twice the future and Henry Hub price. It has been swinging from $7 to over $10 per million BTU for several weeks now, but the $16 price is the highest it has been on the New York spot market.


$10 to $15 range: If Dec consumption continues though the winter we could be much lower on storage in the spring than last spring. I expect that a hot summer will reduce storage ability for next heating season. We could go in with much lower gas in storage and have a big rise in prices next Dec.

When I voted there were only 3 votes.

My view is that as the rest of the world prepares for Peak NG, what with those fancy LNG terminals and all, those of us here in the US will continue to benefit from producers blowing down the NG caps off of oil fields where they have provided a great service by holding down on the oil saturation of the formation. After this, the oil depletion rates will get worse and we will have lost another valuable resource. I expect to see this come to a head in 2009, however, and that is when TSHTF with respect to domestic production. This, incidentally, is what has increased the production of NGPL's as well.

With respect to the number of wells and the production decline, I would make a further comment. A lot of those wells were drilled to tap coal seam gas production, which is increasingly going to thin-bed coal seams, and the production does not give the big burst of gas up front with those, but increases as the coal seam is de-watered and then peaks somewhere one to three years out with a much slower subsequent decline rate. In general, the success rate is much, much higher for these wells, they are generally shallower and the main problem is the de-watering which does not occur in conventional gas production. Also, other shallower gas wells tapping low BTU gas zones and treating the gas as a business practice has the effect of putting wells online which deplete quicker, but are again, lower risk.

As soon as the Jack # 2 is online with a 125+/- mile gas line from deep in the Gulf, we will have a better idea of what the price will be - and my guess on that is somewhere around five to ten years out. Likewise for the deep offshore Brazilian wells, if they decide to develop that stuff at all.

The Laherrere graph is a real eye-opener for me. Only approximate calculations can be made from the graph, but it appears that per-well production has dropped 4-to-1 since 1970. I had no idea.

Technical explanations aside, the graph suggests that exponential well growth is required to maintain even flat gas production. Albert Bartlett would tell us that this will not last very long.

if one takes the top chart at face value, you would propably conclude that the price is headed up. ("marketed" production down while the # wells is rising). the caption just says production.
many producers are swing producers whether they want to be or not,restricted by pipeline pressure.

here is a blog titled " canadian natural gas vs lng"

you may have to scroll down. according to this editorial, lng has a tendency to stabilize gas price here on the na continent.

anyhow, my guess is $8-$10 for ye08

One view on this is that
a) increased production from the Barnett shale
b) LNG imports
c) a US economic slowdown

will more than offset factors like decreased imports from Canada and will keep prices in check.

My vote is or $6 to $8/mcf.

With an active hurricane season such as 2005-06, however, my prediction moves to $10 - $12.

Gas storage has been above the 5 year average for several months due to 'a' and 'b', I think, plus recovery in the GOM from hurricanes. It just dropped below the 5 year average probably due to the recent cold weather. This may be an indication, as mentioned in an earlier post, of the fine line between a surplus and a shortage.

Thanks, Nate, for providing us with an compelling pretext for on-the-job procrastination!

Gas storage is still above the five-year average and the ten-year average. However, inventory levels are now below last year's levels. But I wouldn't read much into that phenomenon--last winter featured some truly anomalous weather that will not likely be repeated during the current heating season.

What WT said upthread is true: the difference between a glut and a "shortage" is very small (2%). For the US, that amounts to about 450 bcf per annum.

Factors arguing for a price increase:

* diminishing Canadian output
* increased NG consumption for refining/tar sands extraction
* >50% probability of a colder winter relative to 2006-2007
* additional NG-fired generating capacity coming on line

Factors arguing against a price incease:

* increasing output from Gulf of Mexico operations
* increasing output in Mexico, reducing exports from US
* increasing LNG import capacity

I predict that some time in 2008 NG will settle on a new floor, which will be in the $9 - $11 range (straddling #4 and #5, sorry!). This is predicated on the assumption that LNG will set the marginal price of NG going forward, especially as Canadian output continues its unwholesome decline. To the extent LNG becomes the supply source of last resort, the US will have to outbid the UK and Japan. The last time I checked, NG was fetching the equivalent of $10 US in the UK spot markets.

Mish (Mike Shedlock) predicts that the pound sterling will decline to about $1.80 US in 2008, a 10% decline, which is why the new price floor could be $9.00/MMBtu.

Michael, near where the Ice Bowl was played 40 years ago.

EnergyGeek wrote:

The last time I checked, NG was fetching the equivalent of $10 US in the UK spot markets.

Interestingly, this source has the current price of LNG in Japan at about $14:

LNG imports in the U.S. are low right now because the benchmark gas price in the country is at about $7 per thousand cubic feet (U.S.). By comparison, LNG producers selling their product in Asia can get as much as double that rate.

Imports of LNG in US have dropped from 98B in Jul/07 to 32B for Oct/07.Price is a very big factor!

I Disagree EIA Data on imports

July 414,464 Million Cu Ft

October 352,768 Million Cu Ft

Furthermore more imports are required in July than Oct. to satisfy Elect Generation and little home heating is required.

i am 40 miles away from where Ice Bowl was played 40 years ago....

I agree re new floor on nat gas - I wonder what the price elasticity is on gas vs oil if we have economic downturn(which todays ISM #s show we already are in)? I would think the marginal usage of oil could be cut down easier than the marginal usage of nat gas, meaning the floor is already pretty close to here on gas, unless we have perfect (un)storm of mild temps, etc.

SWAG: NG floor is in region of $6 per mmbtu based on marginal cost of new production. We saw NG production getting shut in over summer at below $6, as the market contango paid almost 20% to shut near-depleted fields adn roll over for 12 months. obvious.y for fields with more than couple years production left, the NPV implications of shut-in do not make it worthwhile. It seems that a lot of new production goes into rapid decline almost from the start.

On crude I would say downside is to about $70 per barrel (with possible overshoot to $60). The Wikipedia megaprojects show a pretty significant chunk of new capacity coming on in 2008 and 2009, almost double what we have seen annually in the last four or five years. Coupled with lower demand growth as the global economy slows, I think we need to see decline rates of 5.5% at existing fields in order that new production capacity does not result in stock builds. I am not sure that decline rates are that high yet. If this is the case and we get stock builds in 08/09, then prices are probably headed to the point where marginal production gets shut in, places like the North Sea. I hear there is around 4 million bpd of marginal production globally at cost circa $70 per barrel, so I see this as a pretty hard floor, with overshoot only likely if we see significant stock builds.

In summary, NG downside something like $1.75 /mmbtu (equv $10 /barrel). Crude downside closer to $30 /barrel assuming slowing economy, lower demand growth and new production coming on stream as planned (a lot of "ifs" there).

I'll go with #4, between $10 and $12, as over the long term, we will have to deal with peak natural gas. However, the problem with this question is that it in the short term it depends almost entirely on the weather. Colder winter weather and summer hurricanes will drive the price up, and absence of the same will drive it down.

While winter cold is a traditional prime factor in NG prices, our increased reliance on NG for electric generation means we're seeing a summer peak demand too. A hot summer can now drive gas prices up as more air conditioning is demanded, using more electricity.

In recent history, gas has hit $15. I'd say that normal summer and winter temps will see yearly average prices around $10 to $12 in two years. Winters could peak at $15 or more - summers could see $10.

Hm... not really an investor's perspective, but it looks to me like NG prices to consumers here in central Canada will have to soar next year, as the reduction in wells drilled translates to reduced supply. This winter appears to be relatively normal in central Canada -- meaning cold -- as opposed to last year's global warming special, so I expect storage will draw down rapidly, and the new wells that could fill 'er up again for winter 2008/09 have simply not been drilled.

In my part of Ontario I'd estimate 80% of residential heat is NG (While only 7% of electricity generation is). Since we are competing with tar sands and NAFTA commitments for a reduced NG supply, it seems that there will have to be a domestic NG supply crunch by next winter.

The only media about this seems to be in the financial and industrial press, and it's all very abstract and technical, with a focus on rig allocation -- no mention at all that it might connect up with how to keep the heat on next winter!

Since there is so little media interest in this, I can only think that I'm missing something obvious... maybe we'll be saved by coalbed methane or LNG imports? Maybe new wells can be brought on real fast next year?

I can't really see where nick-of-time solution is going to come from, but we can't really be so clueless that we would not see a supply crisis coming in a relatively simple and linear system like Canadian domestic NG... right?

More on gas and the gas-tar sands linkage:

I can't really see where nick-of-time solution is going to come from, but we can't really be so clueless that we would not see a supply crisis coming in a relatively simple and linear system like Canadian domestic NG... right?

Well there's always the possibility an asteroid might hit first, cold fusion is perfected tomorrow or the world's biggest oil field is dicovered under Washington DC next week :-) in which case politicians would have pissed off people by telling them about peak oil now - so might as well wait as long as they can. Meanwhile the clock keeps ticking down.


An asteroid hitting us? Just when I was all prepared for the big game in a few weeks?

Gee Daddy, will there still be Football when the oil is gone?

The World turns, with or without U.S.