Drillers prepare for chill as natural gas plumbs lows - Shaun Polczer, Calgary Herald
August 26, 2008
Prices at lowest level since February
Natural gas prices sank to a new six-month low on Monday, raising the prospect for a third consecutive winter of discontent for drilling levels.
In New York, futures prices dipped as low at $7.61 US per million British thermal units -- their lowest since February -- before bouncing back to $7.83 to finish two cents lower on the day.
Alberta spot prices fared worse, closing at $6.58 Cdn on the day.
Without a catalyst in the form of extreme weather the leading indicators are all pointing downward, said Duncan Robertson, a managing partner with Calgary-based markets analysts SBM Inc.
"Our view is that I think they're going to head lower," he told the Herald. "It's going to take a significant bullish event for the market to take a U-turn. That said, it'll only take one honking hurricane lined up at the Gulf of Mexico to shift sentiment."
The drop came as forecasters said tropical depression Gustav could become a hurricane by the end of the week, although it was still unclear if the storm would cause production shutdowns in the Gulf of Mexico.
After increasing since the start of the year, natural gas prices are about half of their mid-summer highs recorded in July.
Martin King, a commodities analyst with FirstEnergy Capital Corp. in Calgary, said he doesn't expect to see a rally back above $9 before fall.
Last week's 88 billion cubic feet (bcf) storage injection was the biggest since 1996 and he's expecting near-record inventories before heating season starts later this fall. He's expecting another 80 bcf injection when storage numbers are released later this week.
"It's not that I'm turning bearish, it's just that there are fewer and fewer reasons to be bullish prior to winter."
Lower prices are giving producers fewer incentives to drill gas wells, which will only exacerbate some 700 million cubic feet per day of production declines since the start of the year.
According to the Nickles.com website, which publishes the Daily Oil Bulletin industry publication, Alberta's well count fell by 25 per cent in July compared to 2007. About two-thirds of all the wells drilled in the province target natural gas.
Combined with the provincial government's pending royalty changes, FirstEnergy's King agreed that drilling levels are likely to remain lacklustre for the foreseeable future.
"It's tough to find any reason to get excited about gas drilling in Alberta," he said.
The situation contrasts with the U.S., where natural gas production is rising at the fastest rate in almost half a century thanks to contributions from big unconventional gas plays such as the Barnett shale in Texas.
According to the U.S. government's Energy Information Administration (EIA), gas output in the Lower 48 states has climbed about nine per cent since the start of the year -- some four billion cubic feet a day -- at the fastest clip since 1959.
Peter Linder, president of DeltaOne Capital Partners, said the surprising jump in American production is one of the major contributors to lower gas prices.
But he doesn't think they'll fall much lower than the $7.50 mark. By contrast, Canadian gas prices averaged $6.12 for all of last year, bottoming out at $4.36.
"Higher American production is certainly a big factor in the gas price correction. I'm very surprised it's such a big correction, but I believe it's overdone. We are at or very near the bottom," he continued.
"All you need is one hurricane to enter the Gulf of Mexico and we're back above $10 to $12. Let's just let the hurricane season play out."
Saskenergy may raise costs - Joanne Paulson, Saskatchewan News Network; Canwest News Service
Tuesday, June 24, 2008
A surge in the price of natural gas may result in higher costs for SaskEnergy customers this winter.
At present, residential customers are paying $6.57 per gigajoule (GJ) for natural gas, which was reduced from $7.17 last fall. Since January, however, natural gas has steadily risen in price, hovering between $12 and $13 per GJ on the NYMEX exchange during June.
SaskEnergy tends to follow the AECO monthly index in Alberta, which trends lower than the NYMEX; but the AECO price was still $10.50 per GJ on June 10.............
.....Gil Dawson, a gas industry analyst with SBM Consultants who advises SaskEnergy, said prior to 2003, 85 per cent of the price of natural gas was related to inventories. Since then, the futures market -- which is almost exclusively concerned with trends -- has driven pricing, he said.
There is a new belief among speculators that oil and natural gas are interchangeable because they are both fuels, said Dawson. As long as speculators hold that view, natural gas will continue to follow the oil price.
It has been doing so since January, during the second-coldest U.S. winter in 10 years. As crude oil began its rise to its recent level of about $135 per barrel, natural gas suddenly started to follow and continued to do so after winter ended, said Dawson.
Oil is still being seen as a "one-way bet" because of restricted supply and high demand. Prices will continue to rise until demand eases off, said Dawson. The price of oil will stay high if the U.S. economy strengthens; if supply retracts; and if resources remain "locked" in countries such as Mexico, Iran and Venezuela due to government policies.
The price will go down if price spikes in oil lead to a reduction in demand or if the world enters a recession, said Dawson.
In the case of natural gas, mild weather also drives down the price.
Is time right for sale of Compton? - Shaun Polczer, Calgary Herald
June 14, 2008
Buy low, sell high - it's the mantra of the oilpatch. But against a backdrop of volatile commodity prices it's often easier said than done.
That's the dilemma facing Compton Petroleum Corp. after it finally decided to put itself up for sale this week after a protractred internal debate between its management and its board of directors.
Compton in February said it would "review" strategic alternatives but it wasn't until late Wednesday that it indicated any intention of actually doing so..........................
...........Bruce Edgelow, vice-president of energy for the Alberta Treasury Branch, says Compton would be a good fit for an "outside" company like TAQA that would be attracted to Compton's reserves.
Although Compton has "nice" assets, it also has relatively high debt levels that could preclude domestic pruchasers from offering top dollar.
"It's going to take a special purchaser to pick them up," Edgelow said. They've (TAQA) got enough cash in their till to come in and pay it off."
High commodity prices put potential buyers and sellers in a dilemma. Buyers, awash in cash, are often under pressure to do deals. If they don't, they become takeover targets, says Martin Pelletier, an analyst with Blackmont Capital in Calgary.
"All of this means the industry is going to be flush with cash, especially those that are unhedged, and they are going to be somewhat constrained as to how well they can redeploy that cash internally in their programs," he said.
"So what do you do with that extra cash? You can pay down debt, but debt levels are improving dramatically so far to date. So maybe they use that cash to make acquisitions."
Sellers try to exit the market at the top, but finding peak valuations is tricky - especially when commodity prices keep rising almost in defiance of the laws of gravity. Gerry Protti, Encana's vice-president of public relations, told the Global Petroleum conference last week oil could hit $200 if only because nobody expected it to go above $65 last year.
The situation is trickier with natural gas, which has arguably been even more volatile than oil ever since hurricanes Katrina and Rita slammed the Gulf coast two years ago.
"Look what happened to gas prices, they went from $15 to $4," said Gil Dawson, a managing partner with SBM consultants in Calgary. "On the natural gas side, there's a lot more risk."
Dawson doesn't predict prices; rather he synthesizes various bits of data to get a better idea of where the market is headed.
What's distorting physical markets is the entry of big financial players like hedge funds and speculators.
Although they agree the longer-term trend for both oil and gas is higher, they're afraid of what could happen in the shorter term. "I think the bottom for gas is still ahead of us," Dawson said. "I don't think it's a good time to buy."
Oil tops $120 on supply concerns - Shaun Polczer, Calgary Herald
Tuesday, May 6, 2008
Lower dollar, Nigeria unrest behind surge
Oil prices crashed through yet another psychological barrier Monday, briefly topping $120 US per barrel...................
Walter Zimmermann, who heads New York-based oil futures broker United Energy, said crude continues to rise almost in defiance of all the usual laws of supply and demand.
"Every technical indicator I've come to trust is overcooked, overbought, and overdone," he said.
Hedge funds and money managers continue to pour speculative dollars into commodities, pushing the prices of everything from oil and metals to new highs. Like oil, the U.S. copper contract on Monday hit a new lifetime high of $9.37 a kilogram.
"The speculative length is reaching historic proportions by any measure," Zimmermann said. "It's a momentum play."
Duncan Robertson, a managing partner with commodity consultants SBM Inc., said there's no limit to how high speculators could push prices in the short to medium term.
Although he agreed the bubble could eventually burst, all leading indicators point higher.
"The absolute fundamentals and price uncoupled a long time ago. The only thing that's going to get in the way of oil prices is a deep and prolonged U.S. recession. The sentiment today is extremely bullish."
Meanwhile, noted................
Natural Gas and Crude Oil Market Perspective - TheEnergyNews.Com
July 6, 2007
Natural gas and crude oil market perspective - video clip - TheEnergyNews.Com. Excerpt from an interview with Brett Harris, Calgary Bureau Chief, on Thursday July 5, 2007, Calgary, Alberta, Canada.
Junior Firms Battle For Investment - Shaun Polczer, Calgary Herald
June 20, 2007
Raising Capital Much Harder In Tough Times - For junior energy companies looking to drum up investment amid an uncertain outlook for oil and natural gas prices, it's all about making the right pitch.
That's why many smaller firms are facing a tougher audience of investment brokers as they take centre stage at the Canadian Association of Petroleum Producers' annual investment symposium.
Natural Gas Market Perspective - TheEnergyNews.Com
May 2, 2007
Natural gas market perspective - Wednesday, May 2 Late Edition, TheEnergyNews.Com [ video clip ]
Brutal Period Faces Gas Producers - S. Polczer, Calgary Herald
February 8, 2007
A double whammy of rising costs and falling prices threaten to undermine the competitiveness of Canada's natural gas industry, observers said Thursday.
Oil Prices Continue Climb After OPEC Reduction - S. Polczer, Calgary Herald
December 16, 2006
Oil prices rose for the second day after a decision by OPEC to cut production bolstered global energy markets.
Crude Slips To $54.86 Amid U.S. Slowdown Fears - S. Polczer, Calgary Herald
November 18, 2006
Oil fell below $55 US a barrel for the first time in 17 months on Friday after worries that the world's largest consumer is headed for an economic slowdown.
Gas Producers Dreaming Of A White, Cold Winter - S. Polczer, Calgary Herald
October 7, 2006
A harsh winter of discontent is shaping up for natural gas producers in light of continuing low prices, analysts say.
Oilpatch Shakes Off Fears Of A Summer Price Crash - P. Haavardsrud, Calgary Herald
August 12, 2006
Pervasive in the oilpatch only a month ago, bone-chilling visions of natural gas prices cratering by the end of summer are subsiding.
Market Heads Into Unkown - P. Haavardsrud, Calgary Herald
June 3, 2006
Natural gas markets are in a conundrum.
Not just run-of-the-mill commodity price uncertainty, mind you. Right here, right now, the best minds in the natural gas world are groping with a puzzler several years in the making.