"I think the (natural) gas storage surplus is smoke-and-mirrors," said Phil Flynn, Energy Analyst for Alaron Trading Corporation in Chicago. "It masks an underlying problem with production." Mr. Flynn is not alone in his assessment of the natural gas market. Jim Cramer of The Street.com echoed similar thoughts. Flynn wrote in his Energy Report on Tuesday, "Lets face it the heat has melted away the veil of secrecy around the natural gas complex." The devastating U.S. heat wave has left its mark on North America's electricity grids, which has now reversed the downward trending price of natural gas.
The year-to-date bottom for September natural gas futures prices came on July 18th. A reversal came the following day and pricing has since climbed higher on (a) California's heat wave, (b) natural gas inventory drawdowns and (c) near-record high or record-high electricity usage in the eastern half of the United States and parts of Canada. Also on July 18th, we published our interview with Sprott Asset Management analyst Eric Nuttall, entitled, "Zero Doubt: Natural Gas Prices Will Go Higher Again." The markets are all about timing and the interview with a member of the Sprott Asset Management team again reminds us why they are amongst the most prescient (and successful) of North America's money managers.
Natural gas production is declining. "The demand for natural gas continues to rise and production is failing to keep pace," Flynn told us. "The storage surplus has given us a false sense of security." On July 10th, James Rogers told us, "Longer term, natural gas production is declining in North America. Eric Nuttall told us, "North American natural gas production has been in decline for several years."
Natural gas is the primary source for electricity generation. Record humidity and temperatures drive consumers to run their air conditioners on higher settings and for longer periods. In one Reuters news agency report, Ohio dairy farmers were reportedly air-conditioning their cows to keep them alive. Another heat wave passing through the United States might seriously jeopardize the country's power grid.
The New York Times reported this past Wednesday, "Experts say demand is rising faster than the ability to meet it, which over the long run could pose the risk of both local and regional failures." Three system operators, managing regional grids for the some of the worst-hit states, said demand for electricity set new records which eclipsed records set only two weeks earlier.
James Finch contributes to StockInterview.com and other publications. Visit http://www.stockinterview.com to download your free copy of "Investing in the Great Uranium Bull Market: A Practical Investor's Guide to Uranium Stocks." You can always write to James Finch at jfinch@stockinterview.com
