SOURCE: Rothman Research

Rothman Research

May 17, 2010 08:31 ET

Natural Gas a Long-Term Vision

JOHANNESBURG, SOUTH AFRICA--(Marketwire - May 17, 2010) - - Demand and Supply is the basic mechanism to evaluate price for a commodity. All commodity producers look for higher prices to be profitable and for this to happen demand must be higher than supply. Nowadays, supply for natural gas is overwhelmingly higher than demand, making natural gas prices very affordable for end-users and less profitable for suppliers. Natural gas prices have declined by almost 70% from their high in 2008. With North-America's natural gas reserves estimated at around 12 trillion cubic feet, natural gas prices are anticipated to stay depressed in the near- to mid-term. However, many industry experts believe natural gas, being domestically more abundant than oil, could play a vital role in the long-term and help offset the current dependency on foreign oil.

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With the recent oil spill in the Gulf of Mexico, natural gas could start to be seen as a more eco-friendly alternative for the long-term. Demand is also forecasted to go higher as the idea of making natural gas a bridge fuel for 18-wheels heavy haulers is starting to gain grounds. However, with natural gas prices at low levels for quite some time, the oil and gas industry is seeing a number of its independent oil and gas giants beginning to rethink their natural gas production strategy and reinvesting in oil drilling and production. Chesapeake Energy Corporation (NYSE: CHK) is probably one of the most notable player in this space that has for some years been actively pursuing its transition from natural gas to oil. The simple logic behind this transition is that oil to gas values has currently surpassed the 3 to 1 ratio, making oil a more lucrative prospect than gas.

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Chesapeake is certainly not the only one making this transition. Many other oil and gas companies like Devon Energy Corp. (NYSE: DVN) have also started to invest more in oil exploration and production. Devon Energy has already been aggressively selling its assets in the offshore and international regions as part of its restructuring plans. However, management of Devon Energy still believes that natural gas may hold untapped long-term prospects, and this could one of the main reasons behind the decision to hold on to onshore properties in the North-Americas.

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