The U.S. recession has curbed demand for natural gas while supply has continued to increase. The obvious result has been a fall in prices. Currently, natural gas inventories are plentiful, but they will not remain so permanently. Lower natural gas futures have already caused a significant supply response. The Baker Hughes natural gas rig count is down to 665 from a high of 1606 last August. A lower rig count means less new natural gas supply. Add to that the natural decline in production in existing wells and when demand returns, there is the potential for a spike in natural gas prices.
Baker Hughes U.S. Natural Gas Rig Count
When will demand return? Probably sooner rather than later. Natural gas offers many advantages to both oil and coal. Natural gas is more environmentally friendly than oil or coal and it is cheaper to transport than coal, and there are significant reserves of natural gas in North America. In Richard C. Young’s Intelligence Report and Young Research’s Global Investment Strategy natural gas is our favored commodity.
Jeremy Jones, CFA
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