BOONE PICKENS: NATURAL GAS HAS BOTTOMED

It’s one thing when Jeff Gundlach, a bond manager, calls a bottom in natural gas as he did last month.  It’s a whole other story when an energy billionaire calls the bottom. Boone Pickens was on CNBC today saying natural gas prices have likely seen their lows. He says:

“You’re gonna tighten this thing up.  Looking out at summer next year at 3-plus (dollars), I think that’s where you’re gonna be. Yeah, I think you’ve bottomed out on natural gas prices.”

The primary drivers here?  Shutting down oil rigs and the decline in coal production should benefit natural gas demand. Additionally, Pickens says the USA has to stop exporting wealth to OPEC and start tapping the resources the USA has here.  And nat gas is his primary focus regarding these comments.

 

Source: CNBC

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. Anybody has some nice medium to high risk companies that will benefit from this?
    Considering adding 5-10% exposure, futures not an option.

  2. “Additionally, Pickens says the USA has to stop exporting wealth to OPEC and start tapping the resources “(In any country that now has them that has been energy dependent in years gone by). This is a bigger story than just the US. Personally I have viewed Opec has a form of external taxation,a vehicle for wealth transfer and so forth. Moreover ,with the US specifically, I think they now have a’get out of jail card’ to change their fomer policies AND transform their trade balances. Might not be de jour,but I understand where Rosenburg is coming from in that other article. The US probably has more going for it in the future than it has had for a long time.So much so that the necessary ,but silly Fed monetary policy of Greenspan and now Bernanke will not be required in that future and that really is something to be bullish about.Real returns on equity and real increases in incomes that don’t comes from Fed policy now if that isn’t bullish what is.

  3. mighty big of him to call a bottom now. looks like a no-lose prediction at this point.

    yes, the US has substantial energy capabilities. folks such as “T” like to drive that home.
    but, curiously, their suggestions to “turn it on” happen to accidentally enrich them.

    the *key* thing to know or ponder about peak oil (in all its derivative forms) and the USA is this:
    the energy policy of the USA is “DAL” or Drain America Last. the US intends to be the last man
    standing (LMS) with oil. DAL has been the policy for decades. DAL is like the military secret programs
    in that the gov can’t disclose the policy existence for nat’l sec reasons.

    Most everything that happens in energy both in the USA and globally can be explained rationally once
    there is awareness of DAL. DAF is the opposite policy possibility. DAL is like an insurance policy: how
    much should one pay to be LMS? Play too DAL too hard: growth potential *and* ability to “drain”
    america is harmed. the “industry” is largely populated by DAF types like “T”.

    its always in T’s best interest to propose that its in the USA’s best interest to do something that will net
    him billions… T sez that the USA needs an energy policy now. we’ve always had one and it is DAL and
    it is low-profile.

  4. “Additionally, Pickens says the USA has to stop exporting wealth to OPEC and start tapping the resources the USA has here.”

    Why does it matter to the consumer? Either I enrich the Saudi royal family or I enrich a US royal family. Either way the consumer pays.

  5. Natural gas has bottomed. Look at $NATGAS on a daily chart. It has formed a classic bullish inverse head and shoulders pattern. The recent low below $2 will not be breached. The low is in. When will it rise is more difficult. There’s no good way to profit from this unless a strong, lengthy trend develops. Only in that case can you buy UNG and profit.

  6. He must believe that domestic natural gas storage is somehow not going to completely fill by the end of the summer. At current production rates, it’s a foregone conclusion that they will fill. Production needs to drop much more rapidly than it is now to not fill.

  7. If one were to buy a gas futures contract for delivery: T just told us (among others) that the juice will be/is
    shut-in because price is too low. If you know that gas is being shut-in, how much money to pay today for
    gas to be delivered in the future? my answer: don’t offer much. One should expect gas to be low in price
    for a long time.

  8. One reason Natgas has “bottomed” is because it “has” to compete with the price of coal. As states across the country convert coal-fired power plants to natgas the price will rise considerably. Unfortunately, it is the consumer that will be hurt as utilities prices will rise considerably. Coal has dropped to 40% of the country’s elecric power source, some sources predict it to drop to 30% by the end of the decade. The natgas industry has been proactive in helping guide the EPA regs to “squeeze out” coal.

  9. eventually, it will rise in price as usage takes off. I wrote a research paper in 1985 having that same thought. but, I
    recommended the use of natgas over coal in all *new* power plants because new supply was growing faster than use
    (and its a little bit cleaner).

    at that time there were barriers to use of natgas in E-power generation. maybe those barriers are, net, lower now.
    it could take a long time to use gas faster than we add to supply – one keeps finding it when looking for oil. the
    huge supply of natgas is a gold-plated insurance policy. after a certain point, it is over-kill. I thought it was at that
    point 25 years ago.

  10. You will see another 20c down (to 1.90) before 3$…. Recent bottom has not yet been confirmed….

  11. I’ve been in OKS (MLP pipeline) for some time now, it has benefited greatly, hardly affected by the drop in NG price. Sold half, playing with house money now.

    Recently bought TEEKAY which is a liquified NG shipper. Big money to be made selling NG to EUR cheaper than the Russians.

    Got stopped out of HGT and SJT, both solid producers, not ready to jump back in yet.

  12. Given that the shale plays are losing money, and most majors would also without hedging, that means current prices are below marginal cost of production. Pickens makes sense from that perspective, but he could have probably said the same thing at 4 (I seem to remember the conventional marginal is ~4-5.)

  13. Thanks, based in Sweden so not very familiar with those names but will definetly check them out!

  14. I don’t have any handy refs. In the mid 80’s I received a strategic mineral resource master’s – so, I’ve always been pondering the basic opposing viewpoints of “drain america” first or last. each has its pro’s and con’s. IMHO, our policy since the mid 50’s has been DAL (for all strategic mineral resources, not just oil/gas). I think that DAL is a bit easier to implement because it plays into the natural inability of our gov to get anything done. So, it can be implemented implicitly. I never did a search until a few minutes ago on “drain america first”. but to my surprise, before I finished “america”, the options for “first” appeared. DAL vs DAF is a basic philosophical argument like being for or against more government. I’m not advocating for either DAL or DAF. I’m saying that our fed gov policy is defacto DAL. once that is accepted, it is easy to understand what, otherwise, would be idiotic policy out of washington. DAL is not a prophesy, it is more of an operational reality. DAF is usually couched in a tone of “we should” (versus the reality of what we “do”).

    @jt26: I’m assuming that Pickens hasn’t repeatedly called wolf – if he really held till now, he’s (as usual) a shrewd player indeed. I think he’s pulling a “switch-eroo” with his wind farm that is a ruse to build natgas E-generation. However, I do agree with him on a basic premise: we have a ton of natGas, let’s use some of it.

    I’ve suspected for 25 years that natGas resources and reserves are under-reported. When I worked for some large pipeline companies on “take or pay” disputes, under-reporting of resources (if true) appeared to be beneficial to them. the under-reporting theory is more along the lines of prophesy. I did have the theory before seeing first-hand some apparent benefits of it. I can’t say much about the litigation related stuff. but, you can see how important resource estimations might be with respect to “take or pay and force majeure” (as a google search).

    a common thread we have here is the EU and euro. some of us just woke up during the last year or so to the realization that we’ve been serially lied to about the functioning and health of the EU banking, etc. (and to be fair to Jo, the USA too). perhaps we should be somewhat skeptical of gov and corporate descriptions of the oil/gas situation too.

  15. CR made a crucial point in one of his papers that (paraphrasing) it isn’t fair to look at USA debt per capita as a legacy to future generations without looking at the value of the assets that also are legacy. looking at the debt from an accounting standpoint is silly for a currency originator, but let’s role with it. It appears to me that the assets far out-weigh the debt. part of that “asset package” is a substantial mineral resource wealth that has been “saved” and can be tapped, once we decide to do it. there’s a *lot* of gas out there – especially in washington. :) Also, consider this wrt oil: if USA pursues DAL or DAF, how does the operation effect China’s acquisition of oil (and other strategic resources)? and is China pursuing drain first or last?

  16. One big difference is you can invest in a variety of US gas and oil drillers and producers while most foreign oil producers with a few exceptions have nationalized their companies. You can’t buy shares in Aramco.

  17. IF you’re gonna DAL, you better have one heck of a defense department, when you’re LMS.

  18. Excellent observation. I am still looking for a suitable way to be long not only natural gas but commodities in general. I wish there was a vehicle that would be long a commodity index instead of playing with futures.

  19. Thanks for the precisions, there, Aspen1880. I find your DAL analysis intriguing although, having worked inside the federal government for quite some years, I am hesitant to say it’s a federal policy, defacto or otherwise. My experience has shown me there is simply not that much foresight at work inside the federal machine. Might not a better explanation for DAL be found in the workings of Adam Smith’s invisible hand?