The Trading Floor

[mick]

part #3 ,,,shortages 04/20/04
Then the short-term answers has to include:
Then the short-term answers has to include:

More and more drilling where you can drill
Extracting more gas from wells already in production
Living with higher natural gas prices and
Expanding conservation and use of the one energy source we have in abundance -coal

We are and will be investing in ALL these areas for years --and in LNG plays as well

But Weissman summed up the entire case for the growing natural gas crisis and challenges ahead as well as anyone has at the Maryland seminar: "How can anyone believe we are not going to have higher natural gas prices in the next 10 to 15 years? We don't need just one or two or three or four terminals. Instead, we need realistically 15 or 20. That will take many years to achieve."

GAS PLAYS IN THE CATBIRD SEAT

And don't forget our Canadian natural gas trusts -- whoa Nelly! I now can forecast 10%-15% higher dividends in 2004 as both gas and oil prices remain high while excess demand overtakes diminishing supply. And don't forget that 94% of the cash flow we get each month from these foreign dividend payers is TAX FREE!

I hold my trusts in a separate taxable account where I leverage these trusts 50% and $100,000 buys $200,000 of these securities. After I pay my deductible interest cost of 3%, I'm left with an over 20% AFTER-TAX return, and that does not count the appreciation I expect in these securities. Like I've written many times, it sure beats working.

Bottom line: I want to see the energy bill passed to reassess the opportunities here. I think the cold winter and huge spikes in gas prices will be enough to convince three senators who voted against much needed energy law reform to make exploration in the Gulf, Alaska and coal beds of Colorado attractive enough for drillers to invest the $50 billion we need to close our natural gas cap.

After all, it was the Clean Air Act of 1990 that caused this demand/supply imbalance. It's going to take equivalent reform in the laws that cover the supply side of natural gas in the U.S. to prevent this economic expansion from choking and breaking down.

But the complete list of names is only available to ChangeWave Investing subscribers. Click here to try a risk-free trial subscription today and get all of the details right away!

The metrics behind this emergency are easy to explain.

It's as simple as owning the only water well in the desert or being the sole umbrella vendor in a rainstorm--when you have something people HAVE to have, and you are the only place they can get it, you get whatever price the market will bear.

First, the demand case:

Residential demand is growing: More than half of all U.S. homes are heated by natural gas and a great percentage of them are cooled by it as well. That figure rises to approximately 75% when you look at the new homes built in the last 15 years. In addition, the average home built in the last 10 years is nearly 25% larger than those constructed in the '70s and '80s. This adds significantly to energy demand. Industrial demand remains high: Industrial demand has dropped but a fraction of the rate of demand growth.
New power plants: The primary natural gas demand driver is the more than 200 megawatts of new power plants that run almost exclusively on cleaner, more efficient natural gas. In most cases the new power plants were permitted to run gas only (which is 40% more efficient than coal) to meet economic or environmental hurdles. These hurdles remain even if gas prices reach $10 mcf -- 80% higher from here.
Population growth: The U.S. population continues to grow at more than 1% per year and is the fastest growing in the G-8 industrialized world.

Now, the supply problem:

Supplies are dwindling: Existing big gas reserves were initially found in the energy go-go years of the late '70s and '80s and are vastly depleted. Production from existing reservoirs has dropped exponentially every year since 1991. New wells drilled tend to be supplemental wells in lower yielding, high-percentage drilling areas to ensure adequate return on investment.
Risk/reward ratio is out of whack: Potential home run deep-water wells are very expensive to drill (up to $50 million-$75 million per well) and carry substantially higher risk of failure.
Environmental obstacles: With the easy wells drilled and the early wells being tapped faster, the remaining "easy" and big gas fields are in environmentally off-the-table Alaska and Gulf of Mexico locations. Plus, issues concerning drilling on federal land continue to detract from the economic equation.
No quick solutions: With no pipeline from Alaska, even if we started to drill tomorrow it would take 10 years before a cubic foot of natural gas reached the continental U.S.
Tougher financial oversight: Wall Street fundraising standards have risen for gas exploration and production so that balance sheet issues are very crucial for publicly held firms. This limits appetite to drill with gas prices so high.
LNG (liquid natural gas) production growth is stagnant: We have not built a LNG plant in the United States in 30 years. The average permitting timeline runs 12 years from the beginning of the process to the first shovel in the ground.
Rising Canadian demand: Demand in Canada -- which supplies more than 20% of our natural gas -- is growing at similar rates, and this reduces the amount of gas available for exports.
NATURAL GAS PRICES RISE 50% IN A MONTH -- WHAT A SHOCK!

The national press is just warming up to the reality of the natural gas supply/demand imbalance in the U.S. -- along with Wall Street. It was just in early November that Lehman Brothers analysts were advising their customers to plan for "$3.50 gas prices" for 2004.

Holy cow, people who took that advice and shorted natural gas futures as a result got CRUSHED over the last 30 days. Let's look at an article in a recent Washington Post to see what the press is now starting to report.

"Buyers were paying more than $7.10 per thousand cubic feet for gas yesterday on the New York Mercantile Exchange, where energy companies and traders bid on large amounts of the fuel. The price has risen by more than 50 percent since the Monday before Thanksgiving. It was $5 per thousand cubic feet a year ago.

"Industry officials say the latest escalation in gas prices is fundamentally due to a thin margin between supplies and demand for the crucial heating and industrial fuel, which Basically it's demand outstripping the supply," said Sean T. Sexton, senior director at Fitch Ratings, a bond rating firm provides almost one-quarter of the nation's energy needs." Wow -- what insight!

"Just as motorists have become used to seeing gasoline prices swing from $1.50 a gallon to $2 and back down in a matter of weeks, households and businesses face wild price gyrations in natural gas prices for at least several more years, the American Gas Association said recently.

"Output from older gas wells has been declining more quickly than expected. Large new gas reserves are not being found or opened up. Meanwhile, the demand for gas keeps growing because it has become the fuel of choice for new electric power plants. The energy bill that Congress has struggled over for two years would not raise production significantly for years, some energy officials say."

"The supply gap should be closed eventually by deliveries of liquefied natural gas (LNG) by ship from the Caribbean, Africa, the Middle East and Asia, energy officials say. But first, new liquid natural gas facilities costing billions of dollars must win regulators' backing."

Eh, they fail to mention that no new LNG plants have been built in 30 years in the U.S. The EARLIEST a new plant has a prayer to be opened in the U.S. is 2010. What do we do between now and then?

Natural gas futures are like any other security that is subject to wild speculation. But ANYONE shorting the natural gas market here should have their head examined. However, I'd short the contract when it runs to $12 because THAT pricing is not sustainable.

But to short $5-$6 gas when we have the new Pacific Decadal Oscillator (PDO) weather pattern emerging is insane. (The PDO is a 15- to 20-year colder winter pattern that is just following a 15-year warmer winter pattern that DIED last year.)

Our natural gas producers and trusts are cranking like we said they would as winter sets in. Congrats to those who believed our research in the summer and added/started natural gas positions on weakness. I have a few more gas tricks up my sleeve, but the basic message is DO NOT let our recommendations get away from you. When they report Q1, Q2 and Q3 cash flow results, they will trade 50%-100% higher from here. Click here to get on board NOW.

(Editor's Note: The natural gas trusts we own at ChangeWave Investing have appreciated as much as 42% from last year. Cash distributions from one trust are up more than 20% in the last 12 months -- to as high as 13% annual PRE-TAX yield! And monthly dividends are growing as much as 50% from here in some cases. Our natural gas exploration and development stocks are up a rocking 50% THIS YEAR...our top storage tank play has soared over 300% and we're just now cherry picking another small handful of well-positioned stocks that I expect to DOUBLE IN PRICE or better over the next nine to 12 months as this crisis plays out. In this report, I'll tell you about one of my favorite "crisis picks" right now, plus I'll give you the names of 8 stocks about to get slammed as this emergency unfolds. But, you've got to join now before these stocks peak late in the winter. For the full list of natural gas winners and losers, try ChangeWave Investing risk free for 90 days now. I'm not just riding on one or two winners here. I have a diversified list of Winners AND Losers that you must act on NOW if you want to profit from this crisis today, before winter hits hard! Click here now.) For the full list of natural gas winners and losers, try ChangeWave Investing risk free for 90 days now. Click here.
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