The Bull Market in Natural Gas is Here. The Bull Market in Natural Gas is Here. The twelve-year bear market in natural gas has ended.
Two major developments in natural gas production have finally shifted the market into deficit for the first time in over a decade. Although we have mostly stayed away from natural gas stocks over the last several years, we continue to follow the market extremely closely. In many respects, natural gas is exactly the type of industry we seek out: the commodity has fallen in price by over 88%, the stocks are incredibly undervalued (often trading near liquidation value), and most analysts and inves-tors have no interest whatsoever. Demand for natural gas is extremely robust, having grown by 30% over the last decade (three times the rate of the previous decade). This growth has been driven by widespread conversion of coal-fire power plants to natural gas in the United States along with increased LNG exports.
The biggest factor keeping us on the sidelines has been supply. In particular, surging produc-tion from the Marcellus shale in Pennsylvania along with associated-gas production from oil wells in the Permian Basin have kept the market in a perpetual surplus for most of the past decade despite strong demand. In many regards, North American natural gas has been moving along a knife’s edge – demand has been strong, but supply has been even stronger keeping the market in surplus. If production were ever to falter, a massive bull market in North American gas prices would result.
That moment has now arrived, and the implications could be profound.