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the energy letter article

  1. 2,988 Posts.
    This seems to be relevant to BUR for those who haven't seen it. Hope this is the start of increased interest in US gas specs - seeing as I hold a whole lot of a number of companies.

    Neil


    February 29, 2008

    Natural Gas: A Key Shift is Now Underway

    By Elliott H. Gue

    For most of the past three years, the fastest growth in the energy patch could be found offshore and overseas. Natural gas prices have been weak, and US and Canadian drilling activity is driven largely by gas, not oil. Therefore, companies with exposure to North American gas markets have vastly underperformed the broader energy indexes.

    The list of underperformers includes contract drillers and services firms that serve producers in these markets. As gas prices topped out in late 2005, drilling activity moderated, which meant less demand for various sorts of equipment from drilling rigs to drill pipe. And, of course, exploration and production (E&P) stocks producing gas for sale in North America also experienced headwinds as their main product became less valuable.

    But a key shift is now underway. As I’ve noted in The Energy Letter and At These Levels, North American natural gas prices are finally rising again; inventories of gas in storage are now approaching normal seasonal levels, and a colder-than-expected winter is driving demand.

    And gas prices are even higher in Europe and Asia. That means that companies with the flexibility to ship gas in the form of liquefied natural gas (LNG) aren’t sending shipments to the US. In fact, according to the Energy Information Administration’s (EIA) data, US LNG imports in November--the latest month for which we have accurate data--fell to the lowest level since 2002. That’s further tightened supplies.

    A rapidly improving environment for gas prices has reawakened a host of North American natural gas-levered firms; for the first time in three years, I see more opportunity in these stocks than in the more internationally focused companies. The key to investing in North American energy stocks is simple: Focus on unconventional reserves.

 
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