The bottom might be in for natural gas

Discussion in 'Commodity Futures' started by retaildaytrader, Sep 15, 2009.

  1. In 2000 and 2002, bottoms in natural gas were associated with gas rig counts in the low 600s. That was 7 years ago and the population of the United States has expanded by 8.5%. There has been a lot of construction that has taken place.

    The current rig count stands at 699 with the lowest in July at 675.

    While there is lots of supply of natural gas, I cant see how that supply can expand with the rig count numbering in the 600s which was just enough to support a population that was 8.5% lower.
  2. and you know the success rate of people who try to call tops and bottoms...?
  3. Shale Gas.

    Wells take less time to drill - Produce massive amounts of gas after fracing.


    Traditional multi month wells in the foothills aimed at carbonates and sandstones.

    in 2000, 600 rigs were doing something completely different than the 699 rigs are doing today. Furthermore, LNG was not as prolific 8 years ago. Exxon can bring it in profitably at 2-3 $.

    And finally, what percentage fo that rig count are actually drilling for NG vs Oil?

  4. Also, what say you about the current contango situation?

    A lot of people have been calling the technical bounce and short covering rally that we have seen in NG over the last week.

    I like this link here as a great explanation of the number of rigs vs life cycle and decline of production of NG

    Basically last year we saw a 7% increase in the amount of NG produced w/ 1500 rigs drilling. (note 7% increase in gas, almost the 8.5% increase you were talking about)

    Theres a 25% depletion rate each year. So to get that increase of 7% we actually increased production by 32%

    So if the amount of rigs drops to 700 from 1500 you'll see roughly a 50% decline in the amount of gas were able to replace from drilling.

    So currently we are only replacing 16% of the NG, and we are depleting at 25%. This means we are currently losing 9% of the NG production at the current rig count.

    So were down 9%. But were actually up 7%. So were really only down 2%.

    This doesn't factor in LNG, or imports from Canada.

    Now add in the effect of the economy in the crapper. How much reduction in demand does that account for? 5%? 10%?

    Not hard to imagine we are still in an easy surplus production situation.

    But then again, maybe people will be running their AC & Heaters more because gas prices are down?? We'll see.
  5. kftrader


    I posted A chart of a holding I have which is WG in the link below.

    I live in the Marcellus Shale and I am going to a meeting in October on how all the drilling is going to impact our area.

    I think Natural Gas has a big future. Feel free to express your views of my chart and post. Would like to hear feedback on my holdings. Thank you all.
  6. RedSun


    Remember that most of the drillings have been shale and deep-water offshore. These wells have much longer life than traditional and shallow-water wells. You do not need so many rigs.

    But NG price is not correlated to fundamantals nicely...
  7. kftrader


    Thank you for input.
  8. Nattdog


    what about weather? Might be a cold, cold winter. anyone have a farmer's almanac handy?