Monday, January 23, 2012

Chesapeake Cuts Production. Will other producers follow suit? - Rig count (CHK)

5 min CHK 
Natural gas futures awoke today from a declining vegetative state with CHK throwing the valves the left on 9% of their US dry gas production essentially shutting in 0.5bcf/d dry gas and up to 1bcf/d by by Q2 2012........ this announcement caused a violent spike in NG futures.

The price throughout the day rose from from 2.31 to 2.619 and the (semi) popular ETF UNG up some 9% ....

According to Tudor Pickering: "Significant gas activity declines are necessary for improvement in supply fundamentals and view reductions (-163 rigs since Oct high) as step in right direction."

As you may or may not know the price of natural gas futures are down substantially since they last saw a sharp spike in 2008. The drop in price can be explained in simple supply and demand terms....  greater and greater capacity has come into the market as shale gas and liquefied nat gas production has boomed while demand has remained constant...... this is the driving force behind pushing prices lower and lower.
1 min NG futures.. more upside into 3.20 if this triangle holds

The million dollar question is will Chesapeake's competitors follow suit with production cuts or will CHK remain on it's own. IF other major US producers follow suit you can surely bet on much upside in nat gas prices, especially if last portion of winter and spring is cold.

More longer term speaking..upside in a Nat gas prices can be bolstered if current US energy policy rhetoric hints at utilizing our vast reserves of nat gas...or more cuts cuts...

If i remember right i tweeted a few weeks ago.. "we have a lot of nat gas, its time to start using it" - time to start thinking about the above paragraph becoming a reality.

There is so much gas they are shutting in production.. wake up washington.