The natural gas is often forgotten by the investors for the benefit of the oil this is due to its moderate cost. But since the beginning of year 2000, the natural gas went out of its hibernation at the same time as the other sources of energy, they were forgotten too by the investors. This article is a simple graphic analysis of the price of the natural gas in the USA since 1976 with some remarks on the market of the natural gas.
I. The graph of the price of the long-term natural gas.
From January 1979 till January 2000, the price of the natural gas stayed between 1 dollars and 3 dollars. The average of the price of the natural gas, during these last 20 years, is 1.95 dollar by thousand cubic feet. The average price is thus in the middle of the canal.
B. Taken out of the canal in January, 2000
At the beginning of year 2000, the price of the natural gas goes out by the height of canal, it breaks then the resistance of 3 dollars by mcf. Then, the price of the natural gas got twice a maximum slightly below 7 dollars by mcf.
C. Construction of a triangle.
The triangle of the price of the natural gas forms itself from January, 2000. The triangle builds itself from 2 dollars and ends in 7 dollars by mcf. In case of exit by the height, the objective is 12 dollars (7-5 = $5, $5+7=12). Even if this triangle is invalidated, and that the price of the natural gas goes out on the bottom of the triangle, there is a very big support which should prevent it from falling below 3 dollars by mcf.
D. Perspective of the price of the natural gas.
- Pessimistic option: we have an exit on the bottom of the triangle, there is then an evolution of the price between 3 dollars and 7 dollars by mcf, with an average price of the natural gas in 5-dollars surrounding by mcf.
- Optimistic option: the exit of the triangle is made by the height and the price of natural gas evolves between 7 dollars and 12 dollars by mcf with an average price in the zone 9 dollars in 10 dollars by mcf.
But, it seems to me totally excluded that the price of the natural gas comes down again durably below 3 dollars by mcf.
II. Some remarks on the market of the natural gas.
A. The reserves known for natural gas of Canada fell in spite of record investments in 2003. Canada is the third producer and the second world exporter, the production of natural gas of Canada represents 7.3 % of the world production. It is the first exporter of natural gas towards the USA. The companies drill more and more wells for fewer and fewer discoveries.
B. The price of the natural gas releases itself more and more with the liberation of the market of the gas in numerous countries. It is traditionally a long-term market, but bit by bit a free market of the gas appears ( to resume of course), what engenders big short-term price changes (I still resume). The companies of gases get free more and more long-term sales what returns the price of the much more volatile natural gas.
C. The investments for the transport of the natural gas are very important. Pipelines are often needed to transport the natural gas of the place of production in the station of liquefaction. The gas is then liquefied in a temperature of 82 ° with a pressure of 47 bars. It is transported in a gas carrier until a unity of Gasification. It is for that reason that the transport of the gas is 6 - 10 more expensively than that of the petroleum.
It is just three remarks and not an analysis on the market of the natural gas, that deserves some dozens pages of explanations.
The subject is the evolution of the price of the natural gas, but it is the price of the energy in general that knows a sharp increase. You should not especially fall in the trap of the short-term cyclical justifications (weather report, political crisis, …etc.). The reasons of the increase are structural long-term modifications (constant increase of the demand, the decline of the discoveries, and the increase of the costs of the new discoveries,…. etc.).
The cheap natural gas, it is ended! As it is the case for the oil, the coal or the uranium. The evolution of all these sources of energy in the same time indicates the beginning of a bullish movement to very long term. The natural gas goes to see its price to increase in a important long-term way. The natural gas will never fall durably below 3 dollars by mcf. This article is very incomplete, I shall return as soon as possible on this subject to make technical analyses supplementary and add explanations on the situation of the natural gas generally. Be careful!! This is only a personal opinion, build your own opinion with your searches.
Dr Thomas Chaize