(This is a guest post from the author’s blog.)Compared to virtually all commodities of late, natural gas has been an absolute dog. Holders of a certain nat gas ETF have been forced to ask themselves whether or not a stock can trade in negative integers.
The reason for nat gas’s lackluster price action? The conventional wisdom goes that because of our ability to horizontally drill for shale gas, the supply picture may be damn near unlimited.
Out of left field comes a major-league contrarian call from Henry Groppe, an 80-something year old Texas-based petroleum industry analyst with a long track record of making big calls. According to a story at The Globe and Mail, Groppe argues that shale wells are rapidly depleted and that there is, in fact, a major shortage of gas which will become apparent this summer in dramatic fashion.
David Parkinson reports on The Globe Investor site:
No, his analysis (and more than 50 years of experience) tells him that gas inventories are about to get a lot tighter, that new supplies are overstated, and that prices are headed north of $8 by the end of summer.
Why is he so sure he’s got it right and most everyone else has it wrong?
Because, he contends, shale gas – the previously unattainable source of vast gas supplies that has been unlocked by new high-tech horizontal drilling advancements – is not the holy grail it’s been cracked up to be. Not even close.
Groppe explains that horizontally-drilled wells face a huge amount of rapid depletion once tapped, and so the supply that we are all counting on to be there is ephemeral at best.
A double in nat gas prices by summer’s end? Now that’s a variant, outlying view that grabs my attention. Especially in light of the fact that Nat Gas E&P stocks have sat out most of this rally. Hmmm.
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