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San Juan Basin Royalty Trust Message Board

  • ic4x ic4x Feb 19, 2005 12:51 AM Flag

    NG comments

    An interesting post from another board:

    NG storage level near 1.3 TCF by mid-April is probably right but I
    can't see the price of NG falling to $4.25/mcf. Not with crude oil
    above $45 (and IMHO we have a very good chance to see crude oil over
    $60/bbl by the end of June).

    First, 1.3 TCF in storage is not really that high. NG storage
    usually ends the heating season near 1.0 TCF which is considered to
    be "empty" as this is the fill gas. An extra 0.3 TCF is not going
    to panic the traders.

    I attended Raymond James' presentation at the Petroleum Accountant
    Society of Houston (PASH) on Thursday evening and RJ is expecting
    the NG price to average %7.25/mcf for 2005 assuming we get a normal
    summer. RJ maintains a database of the largest North American NG
    producers and their data shows a decline of 3% in NG supply. The
    only region that increased NG production in 2004 was the Rockie Mtn
    region. We are exporting more to Mexico as their economy improves
    and we are importing less from Canada as they produce less and keep
    more for their oil sands projects.

    LNG is still just 2% of the U.S. supply and we are several years
    away from seeing much more. RJ's opinion is that the Wall Street
    belief that LNG might "crash the party" for NG is way off from
    reality. We are still several years away from LNG becoming a
    meaningful part of U.S. supply. Someone forgot to tell the industry
    that there needs to be a lot more ships built to carry the stuff.
    Plus, the companies spending $Billions to build the facilities
    aren't going to give the stuff away.

    Take a look at the NYMEX strip and you will notice that the June
    contract for NG is higher than the March contract by about 20

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    • <<My strongest point to remember is that energy is very cyclical and always has been. Will this bull run be the mark of a new "one-way" energy market? Possibly, but history strongly suggests differently. Every bull-run has had their "China growth", "Hubbert's Peak" and Mid-East tensions. All have been wrong and were followed by significant downturns.>>

      Well yeah of course I'm not going to argue that oil/NG couldn't go down from these levels, and whether or not we're at a frothy top remains to be seen. But frankly I think we can cross that bridge when we get to it, and it's not entirely constructive to be calling for the sky to fall during a huge breakout to the upside.

      When SJT starts to break down again eventually yeah sure we can talk about the whys and whatnots and why Gunga is so brilliant etc.etc. but until then I'm making a mint in the oil patch :)


    • I would agree that this may not be a good time to take profits in SJT in a taxable account, especially if there are substantial depletion recapture problems.

      BUT, I am taking profits in an IRA. I don't get the benefit of the depletion, and I live by the rule that you should never regret a profit.

    • The fact that many have SJT in a taxable account and would have to recapture alot of depletion in addition to paying capital gains tax, makes the stock less likely to decline. I, for example, wrongly sold the shares in my IRA in the 32s but have no intention of selling the stock in my taxable account even if it goes up another couple of points. I suspect that many others share this view.

    • I respect your market smarts, bocacerrada, as well as those of just about everyone else who posts here. However, I'm banging the table today to point out that things - for the moment - have changed. Oil is trading at $50 as I write. I suspect that has a lot to do with the political and military situation in the Persian Gulf. But natural gas is depressed in comparison with oil and it should stay strong as a beneficiary of the speculation that is going on in oil. As far as SJT - it's a great trust in the right sector. I think Ic4x has called everything right about trading between 27 and 33, but we're at 35 and the chart suggests we're going higher. It is not bad to take profits, and it is dangerous to be too greedy - but SJT is breaking out of it's trading range. It's doing so with the whole sector. Are we at a top? Maybe. Hard to say. But every now and then, the market gets pretty irrational. I thought it was when I started buying SJT @ 17. By the way, when you sell, you'll have to pay capital gains. It would have to pull back quite a ways before making it worth your while.

    • As a 3-5 year investor with SJT in an IRA, I am more inclined to watch O&G futures, possible LNG competition, global demand, and some other fundamental data, and not indulge in attempts to predict cycles. At the moment, I don't see a lot to justify $35, even though oil is over $50. The NYMEX futures for NG are not much different today than they were a month ago, and supply and demand for the next year doesn't appear compelling. So, I am again selling half my position at $35+, and looking for a correction.

      All of which is one man's opinion and worth what you pay for it.

    • "Right now there are ample and growing N. American crude & products storage volumes. Over time, the true fundamentals generally win in the tug-of-war over emotion based fear and irrational perception,..."

      The problem here is that your definition of "true fundamentals" leaves out the "true fundamentals."

      Your "economic cycle theory" has the same defect as any economic theory in that you believe "the market will find a way to balance."

      If this isn't an emotive response, I don't know what it is.

      Sheer optimism that market forces will be able to cope with geological, demographic, and political developments that we have little experience with.

      On the other hand, as long as we have a free market, you are certainly right it will achieve some "balance" -- as it is doing right at higher prices.

    • Gunga -- I especially agree with you about the cyclicality of energy prices --- hard to say where we are in this cycle, unless there is a global recession driving down demand in fast growing countries like China and India, I personally think energy has a lot of legs and we are in the early stage of the cycle. My biggest concern as an energy investor is that prices are getting too high, that is a lose-lose game for everyone as ultimately it hurts the consumer, corporate profits and ultimately dampens energy demand.

      Even though I am a huge fan of SJT and hold a lot of it with an average basis of slightly over $18, I could not recommend SJT to anyone at today's price approaching $35.50, "fair value" in my little world of thinking is anywhere between $30 - $33. Kurt Wullf over at McDep has a net present value of $30 for SJT, but that is using $40 oil as the benchmark, so if you used today's price of oil ($48 - $49), maybe the Mcdep present value calculation stretches to $36 for SJT. For the reasons stated above, I would be more comfortable if oil settled in the low $40s.

      Of course I am the retard who said no way SJT goes over $33 in 2005, so watch it go to $40 now that I have said it is overbought.

    • Regarding the poster's comments on storage...

      "First, 1.3 TCF in storage is not really that high. NG storage usually ends the heating season near 1.0 TCF which is considered to be "empty" as this is the fill gas. An extra 0.3 TCF is not going to panic the traders..."

      I believe "empty" is 0, not 1,000 Bcf. The storage number represents only working gas, not the base gas to keep the system running. So, in theory, the working gas storage number would have to get down to zero to be "empty".

      Also, 1,300Bcf is a very high number in my opinion. Since 1995, only in 98/99 and 01/02 did we end the withdrawal season over 1,300 Bcf. Notably, both periods were very weak for NG.

      I don't think we'll see any panic seel offs in NG, I just think it's prudent to respect that we are sitting at the end of the peak demand season with lots of gas in storage when everyone keeps touting the increased demand and lowered supply frenzy.

      To me, the supply/demand picture is slightly over-supplied right now, just disguised by the sketchy terror premium in oil.

      • 2 Replies to Gungagalonga
      • Gungagalonga,

        I think the analogy would be, when you drive you car (if you drive), do you wait till it totaly runs out of gas and sputters to a stop, get your gas can, hike to the gas station get your gas, hike back to your car... Or do you see the gas gauge getting close to empty and go fill up before it sputters to a stop?

        I believe that's how this would work and trust me I'm no genius and am open to corrections or comments.


        Colonel Geritol

      • Gunga,

        I agree things are "slighty oversupplied." If oil stays high priced, then NG should not weaken much as fuel switching to favor NG over oil will occur.

        For me, the most interesting thing is how well the price of NG has held up with two consecutive years of mild summers and winters, if the weather cycles back to normal or colder in winter/warmer in summer, then we will see upward pressure on NG prices due to the factors cited in the earlier posted message: decline in US production, decline in Canadan imports to US, and low impact of LNG on the supply equation for at least the next 5 years.

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