Contrary to Some Current Market Opinion Natural Gas Could be Highly Competitive and Accessible by 2007

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). There are good grounds for contrarian opinions across the board in energy feedstock and power generating fields in April 2004.

Natural gas is one of those sectors where current market volatility and high prices have caused some market observers to come the conclusion that it will remain uncompetitive as a power generation feedstock and give way to other feedstock sources, in particular, coal.

But Energy Security Analysis Incorporated (ESAI) (Wakefield, Massachusetts) has reported this month that they believe a large increase in LNG imports to the U.S. by 2005 and the payoff of investments in domestic exploration and production activity in North America are combining to cause natural gas prices to fall as low as $4.25/MMBtu in 2007.

"We realize this is a contrarian outlook when gas prices are hovering at $6. But we believe the market is over looking the effects of recent high prices on both the demand and supply sides," said Scott DePasquale, ESAI senior gas market analyst.

"The current level of gas prices smells like a bull trap to us. Markets do work, and these very high prices have done a good job stimulating investments in LNG and destroying some industrial demand. We’re due for a correction," said Ed Krapels, ESAI Gas and Power director.

The impact of stronger utilization rates at existing natural gas (LNG) facilities on U.S. import is highlighted on the supply side by the report. Average utilization of the four existing terminals at Cove Point (PEC 26000848/850/709/710), Everett, Lake Charles (PEC:02005676/4660) and Elba Island (PEC:17001518/1717/1785) will increase significantly, regasifying nearly 1.4 Tcf of LNG by 2007. This is an increase of more than 65% over the next three years. At a delivered cost of $2.50 - $2.75/ MMBtu, LNG imports will significantly offset increasing costs associated with Gulf area reserve depletion. (See archived IIR Industry Alert: 'Bolivia's Reserves Key Element in Volatile Game of Competitive Gas Price' - Industrialinfo.com April 5, 2004.

Industrialinfo.com observes that while some contrarian opinions are available on the size and finite limits of world oil reserves, this issue of potential size and term of supply is not yet a major issue with gas reserves, as even the so called 'stranded' reserves are now being approached with new technologies and transport options - and new reserves of major significance are being announced as ready for commercial exploitation.

A case in point is Venezuela's natural gas where the estimated reserve of 148 billion cubic feet has not advanced for a number of years. This month, the country's Minister of Energy and Mines, Rafael Ramirez, announced that Venezuela would increase investment in field exploration and production to raise the country's gas reserves and output. He said that $7 billion to $8 billion would be invested in field exploration in the next five years.

"We can have the world's third largest gas reserves, after Russia and Iran," said Luis Xavier Grisanti, President of the Venezuelan Hydrocarbons Association, quoted in El Universal. The countries with the richest gas reserves are Russia, Iran, Qatar, Saudi Arabia, the UAE, USA, Algeria and Venezuela - there is also a second tier of countries with very significant and 'exportable' reserves.

It is also reported that the Venezuelan Deltan Platform and the Sucre Marshal project will open the potential for the country's gas to reach the US market in 2009. The US consumes 26% of global output and is expected to double that consumption by 2030. Venezuela could also become a source of gas for Colombia and other Caribbean countries.

Some of the current issues across the power and energy fields seem to be fogged by conflicting statistics or constrained by the viewpoints of powerful special advocacies.

Maybe try a little contrarian thinking for yourself. If the result of that thinking appears to chime with common sense and the bottom line of real investment trends in the market, then pursue the thought.