Capstone Energy Services

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Winter Weather Approaches

November 11th, 2010

OMAHA (Capstone Energy Services) – Weather forecast from the National Weather Service and some independent forecasters are now calling for much colder than normal temperatures throughout most of the country during the last half of November. Traders in natural gas futures responded to the weather forecast news by liquidating existing short positions and taking long positions creating significant upward price move. After closing at $3.836 per MMbtu on the 3rd, the December contract moved steadily up to close at $4.21 per MMbtu by the 10th. The one year average price moved up from $4.176 to $4.408 per MMbtu. This pre-season upward move is a normal occurrence, one that traders had been anticipating for several weeks. Also, adding to the market strength have been some positive economic news suggesting some improvements in the economic recovery.

The winter weather price momentum was at least slowed this Wednesday as the Energy Information Administration issued the weekly natural gas storage report showing more record high inventory levels. Total gas in storage as of November 6th is 3,840 Bcf, 31 Bcf higher than last year and 342 higher than the five year average. These high inventories are symptomatic of the surplus of natural gas on the market that will require both a colder than normal winter and a stronger than expected economic recovery to eliminate the oversupply of natural gas by the end of 2011. As the winter progresses, unless there is a clear sign that these inventories are being reduced significantly faster than expected, prices will likely return to the mid to upper $3.00 level.

Even with the recent rise in prices, natural gas costs are still at the low end of the five year price range and many producers are struggling with the low prices. This environment creates a consolidation opportunity for energy companies to invest or expand investments in areas where they expect a long term financial return. The acquisition of Atlas Oil by Chevron this week is such an investment, demonstrating a Chevron commitment to the domestic natural gas industry and to shale exploration and production. As the economy recovers, so will the natural gas industry, creating higher demand and prices for natural gas and creating an excellent return on investment for Chevron. The question is: how quickly will this turnaround occur?

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By Ed Freeman

Energy Facts

Energy Facts

Natural gas can be used as a raw material in a variety of products, including paint, fertilizer, plastics and medicines.

Natural gas produces fewer emissions than other fossil fuels, with less nitrogen, sulfur, carbon and fine particulates.

Texas produces the largest amount of natural gas in the USA.

The biggest consumer of coal in the US is the electric power sector.

There are 17,658 electric utility generators in the USA.
 

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