Nat Gas and Europe 1) Europe’s brewing energy crisis
The biggest short-term threat to the global economy.
The long-term outlook for natural gas production is bullish
Due to the astronomical increases in NG prices in Europe and Asia and the recent rapid price gains in the stocks of NG producers, the short-term outlook for the commodity and the associated equities would be bearish if not for the likelihood of a severe Northern Hemisphere winter. As it is, we view the short-term risk/reward as neutral, with high risk offset by high potential reward.
As an aside, we doubt that the short-term reward potential is anywhere near as high as a recent Citigroup research note suggests. According to Citigroup analysts: “…there are likely to be [natural gas] price spikes and if unusually cold weather boosts demand and hurricanes in the U.S. Gulf of Mexico disrupt supplies, cargoes could trade in the $100 per mmBtu range, or $580 a barrel in oil-equivalent terms…“.
Also due to the astronomical price gains that have occurred this year, the long-term outlook for the global average NG price is now bearish. However, the long-term outlooks for NG production and the companies that can take advantage of the world’s need for more NG are unequivocally bullish.
The companies that are best positioned to take advantage of the world’s need for more NG are those that produce the commodity and those involved in transporting the commodity across the oceans. Only the latter (e.g. GLNG) are good candidates for new buying near current prices. The former are good candidates for profit taking, although it would be a good idea to maintain core exposure.