Natural Gas Supply

Natural Gas Supply

I have been going long natural gas companies like AR, PXD, RRC and SWN.  I had been under the impression that we just had so much natural gas that prices would always be suppressed.  But I am coming around to thinking it isn't so.  Our supplies are the lowest (rolling 12 months) that they have been for 3 or 4 years.  And the big game changer is exporting.  We are really starting to export a lot. 

And the exporting makes sense as it is a kind of arbitrage.  First look at this graph that shows NG prices by country:

So you can see USA is about 1/2 the price (and less) of everywhere else.  That means it is highly economically feasible to extract gas here and ship it somewhere else as the shipping costs are way lower than price differential.

Now here is the second graph that shows the increasing export by USA as we build out infrastructure:

Look at the gross supply line.  Even though production is increasing, supply is decreasing due to increasing exports.  That, in my view, will put pressure on domestic NG prices.  Especially if we have any sort of event that increases demand or decreases supply (harsh winter or hurricanes in GOM).

We will see how it plays out, but am comfortable holding some of these gassy names.