Natural Gas – An Integrated Analysis
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CONTENTS Introduction Uses of Natural Gas Natural Gas Demand Factors Affecting Short Term Demand Factors Affecting Long Term Demand Natural Gas Supply Meeting Natural Gas Demand Factors Affecting Supply of Natural Gas U.S. Natural Gas price forecast Technical View
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Introduction Natural Gas is one of the principle sources of energy for many of our day-to-day needs and activities. For hundreds of years, natural gas has been known as a very useful substance. The Chinese discovered a very long time ago that the energy in natural gas could be harnessed, and used to heat water. In the early days of the natural gas industry, the gas was mainly used to light streetlamps, and the occasional house. However, with much improved distribution channels and technological advancements, natural gas is being used in ways never thought possible. There are so many different applications for this fossil fuel that it is hard to provide an exhaustive list of everything it is used for. And no doubt, new uses are being discovered all the time.
Uses of Natural Gas Power Generation: Natural gas is a major source of electricity generation through the use of gas turbines and steam turbines. Most grid peaking power plants and some off grid engine generators use natural gas. Natural gas burns more cleanly than other Hydrocarbon fuels, such as oil and coal, and produces less carbon dioxide per unit of energy released.
Domestic use: Natural gas dispensed from a simple stovetop can generate heat in excess of 2000째F (1093째C) making it powerful domestic cooking and heating fuel. In much of the developed world it is supplied to homes via pipes where it is used for many purposes. In the rural areas it is also used as CNG & LPG.
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Transportation: CNG is a cleaner alternative to other automobile fuels such as gasoline (petrol) and diesel. The energy efficiency is generally equal to that of gasoline engines, but lower compared with modern d diesel engines.
Fertilizers: Natural gas is a major feedstock for the production of ammonia, via the Haber process, for use in fertilizer production.
Hydrogen: Natural gas can be used to produce hydrogen, with one common method being the hydrogen reformer. Hydrogen has many applications: it is a primary feedstock for the chemical industry, a hydrogenating agent, an important commodity for oil refineries, and a fuel source in hydrogen vehicles.
Other: Natural gas is also used in the manufacture of fabrics, gl glass, ass, steel, plastics, paint, and other products.
Natural gas uses by sector Other 8% Commercial 14%
Industrial 32%
Residential 22% Electric generation 24%
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Natural Gas Demand Natural gas is believed by many to be the most important energy source for the future. The abundance of natural gas, worldwide as well as domestically, coupled with its environmental soundness and multiple applications across all sectors, means that natural gas will continue to play an increasingly important role in meeting demand for energy. There are many reasons for the long term expected increase in natural gas demand. As can be seen, demand for all types of energy, save nuclear and hydro power, is expected to increase over the next 20 years. This general upswing can be attributed to the expected general growth of the U.S. economy and population in the future.
Factors Affecting Short Term Demand Demand for natural gas has traditionally been highly cyclical. It depends highly on the time of year, and changes from season to season:-
Weather: Natural gas demand typically peaks during the coldest months and tapers off during the warmest months, with a slight increase during the summer to meet the demands of electric generators.
Fuel Switching: Supply and demand in the marketplace determines the short term price for natural gas. However, this can work in reverse as well. The price of natural gas can, for certain consumers, affect its demand. For instance, during a period of extremely high natural gas prices, many electric generators may switch from using natural gas to using cheaper coal, thus decreasing the demand for natural gas.
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U.S. Economy: The state of the U.S. economy in general can have a considerable effect on the demand for natural gas in the short term, particularly for industrial consumers. When the economy is expanding, output from industrial sectors is generally increasing at a similar rate. When the economy is in recession, output from industrial sectors drops. These fluctuations in industrial output accompanying economic upswings and downturns affects the amount of natural gas needed by these industrial users.
Factors Affecting Long Term Demand The long term demand factors reflect the basic trends for natural gas use into the future. In order to analyze those factors that affect the long term demand for natural gas, it is most beneficial to examine natural gas demand by sector.
Residential and Commercial Demand:
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Industrial Demand:
Electric Generation Demand:
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Natural Gas Supply Maintaining an adequate supply of this critical resource is essential to preserving and improving our quality of life. Inadequate supply at any one time leads to price increases, which signal to production companies the need to increase the supply of natural gas to the market. Supplying natural gas in order to meet this demand, however, is dependent on a number of factors. These factors may be broken down into two segments: general barriers to increasing supply, and those factors that affect the short term supply scenario.
Short Term Supply Barriers In a perfect world, price signals would be recognized and acted upon immediately, and there would be little lag time between increased demand for natural gas, and an increase in supplies reaching the market. However, in reality, this lag time does exist. There are several factors that affect this lag time and the short term availability of natural gas supply. They include: Availability of Skilled Workers Availability of Equipment Permitting and Well Development Weather and Delivery Disruptions
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General Barriers to Increasing Supply In addition to the short-term impediments to increasing natural gas supply, there exist other more general barriers to the increased supply of natural gas. These include:
Onshore and Offshore Access: An estimated 59 percent of the U.S. undiscovered natural gas resources is located on federal lands and offshore waters, however much of these resources are off-limits to exploration and production. Access to coastal resources remains an ongoing issue for natural gas: in the wake of the tragic Deepwater Horizon accident and oil spill in spring 2010, the administration instituted a six- month moratorium on deepwater drilling leases in the Gulf of Mexico.
Pipeline Infrastructure: The ability to transport natural gas from producing regions to consumption regions also affects the availability of supplies to the marketplace. The interstate and intrastate pipeline infrastructure can only transport so much natural gas at any one time, and in essence provides a 'ceiling' for the amount of natural gas that can reach the market.
The Financial Environment: Exploring for and producing natural gas is a very capital intensive endeavor. In fact, the National Petroleum Council estimated in 2007 that production companies will have to invest $4.3 trillion in capital between 2005 and 2030 in order to keep pace with demand growth. While efficient and transparent financial markets in the U.S. do offer options for raising capital effectively, the rate at which production companies may do so can serve as a limiting factor in the increasing availability of supplies reaching the market.
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TECHNICAL VIEW Natural Gas CMP - $4.531
Target Price –$6.090
Moving averages Moving Averages Daily Weekly
20 Day $4.293 $4.312
50 Day $4..403 $4.163
100 Day $4.356 $4.387
200 Day $4.283 $5.784
Fibonacci retracement levels 161.2
SCRIPT
0.0%
23.6%
38.2%
50.0%
61.8%
100.0%
Natural gas
$6.086
$5.216
$4.650
$4.215
$3.780
$2.323
$0.8936 $0.0104
38.2% $4.890
50% $5.542
61.8% $5.977
76.4% $6.543
100% $7.435
138.2% $8.870
138.2
Expansion levels SCRIPT Natural Gas
23.6% $4.542
161.8% $9.740
Weekly Pivot SCRIPT Natural Gas
R4
R3
R2
R1
P
S1
S2
S3
S4
$5.526 $5.155 $4.784 $4.657 $4.413 $4.286 $4.042 $3.671 $3.300
Monthly Pivot SCRIPT Natural Gas
R4
R3
R2
R1
P
S1
S2
S3
S4
$5.819 $5.338 $4.857 $4.694 $4.376 $4.213 $3.895 $3.414 $2.933
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TECHNICAL SUMMARY Support/Resistance Levels
14 Day RSI at 80%
52 Week High 13 Week High 14 Day RSI at 70%
Current Price
Price 8.197 5.496 5.031 4.925 4.915 4.898 4.747 4.586 4.585 4.506 4.489 4.485 4.484 4.467 4.434 4.431 4.421 4.397 4.387
4.384 4.364 4.341 4.320 4.309 4.286
Key Turning Points Price Crosses 18-40 Day Moving Average Price Crosses 9-40 Day Moving Average
3-10 Day MACD Oscillator Stalls 38.2% Retracement from 13 Week High Current Price 14-3 Day Raw Stochastic at 80% 14 Day %k Stochastic Stalls 50% Retracement from 13 Week High/Low Price Crosses 40 Day Moving Average 14-3 Day Raw Stochastic at 70% 38.2% Retracement from 4 Week High Price Crosses 9 Day Moving Average 14 Day RSI at 50% 14 Day %d Stochastic Stalls 50% Retracement from 4 Week High/Low 14-3 Day Raw Stochastic at 50% 38.2% Retracement from 13 Week Low Price Crosses 18 Day Moving Average 38.2% Retracement from 4 Week Low Price Crosses 40 Day Moving Average Stalls 14-3 Day Raw Stochastic at 30% Price Crosses 9 Day Moving
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4.269 4.255 4.218 4 Week Low
4.190
13 Week Low
4.055 4.048 3.840
14 Day RSI at 30%
3.724 3.290
52 Week Low 14 Day RSI at 20%
Average Stalls 14-3 Day Raw Stochastic at 20% 38.2% Retracement from 52 Week High 3-10-16 Day MACD Moving Average Stalls Price Crosses 18 Day Moving Average Stalls 50% Retracement from 52 Week High/Low 38.2% Retracement from 52 Week Low Price Crosses 9-18 Day Moving Average
3.170 2.852
Daily Quotes Period 5-Day 20-Day 50-Day 100-Day 200-Day Year to Date
Moving Average 4.498 4.363 4.414 4.270 4.133 4.283
Price Change +0.217 +0.235 +0.335 +0.755 +0.920 +0.360
Period 9-Day 14-Day 20-Day
Raw Stochastic 100.00% 100.00% 100.00%
Stochastic %K 93.90% 91.90% 84.21%
Period
RSI
9-Day 14-Day 20-Day 50-Day 100-Day
65.09% 59.33% 56.67% 53.76% 52.21%
Percent Change +4.97% +5.40% +7.88% +19.71% +25.10% +8.52%
Avg Volume -
Stochastic %D 84.33% 78.74% 64.46%
ATR 0.066 0.068 0.068
Percent R
Historic Vol.
MACD Oscillator
0.00% 0.00% 0.00% 38.37% 27.97%
32.98% 29.71% 29.44% 32.09% 30.69%
+0.151 +0.173 +0.192 +0.141 +0.285
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Weekly Quotes Period Moving Average Price Change Percent Change Average Volume 4.372 -0.330 -6.71% 6-Week 4.234 -0.145 -3.07% 6-Month 4.107 -0.110 -2.34% 1-Year 4.545 -4.735 -50.80% 3-Year 5.817 -2.620 -36.36% 5-Year Period Raw Stochastic Stochastic %K Stochastic %D Average True Range 54.48% 45.40% 45.72% 0.232 9-Week 61.63% 49.75% 49.62% 0.241 14-Week 71.55% 61.27% 58.97% 0.252 20-Week Period Relative Strength Percent R Historic Volatility MACD Oscillator 57.31% 45.52% 42.35% -0.043 9-Week 55.61% 38.37% 38.16% +0.036 14-Week 54.21% 28.45% 35.91% +0.135 20-Week 50.57% 18.91% 41.57% +0.350 50-Week 49.39% 41.56% 82.35% +0.209 100-Week
Monthly Quotes Period 6-Month 2-Year 5-Year 10-Year 20-Year Period 9-Month 14-Month 20-Month Period 9-Month 14-Month 20-Month 50-Month 100-Month
Moving Average Price Change %Change 4.373 +0.150 +3.38% 4.236 +1.215 +36.05% 5.799 -4.665 -50.43% 5.823 +1.275 +38.52% 4.151 +3.245 +242.16% Raw Stochastic Stochastic %K Stochastic %D 79.90% 72.10% 63.96% 70.57% 60.73% 53.47% 42.75% 47.27% 48.72%
Avg Volume ATR 0.718 0.850 0.978
Relative Strength
Percent R
Historic Volatility
MACD Oscillator
53.35% 49.87% 48.47% 48.92% 49.84%
20.10% 29.43% 57.25% 76.53% 80.24%
97.09% 37.71% 44.01% 50.29% 62.25%
+0.162 +0.260 +0.136 -1.101 -1.733
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Weekly Chart hart Analysis
Above is the weekly chart of Natural gas. We have applied retracement of its fall from high of $13.752 (July 2008) to its low of $2.334 (August 2009). Natural gas over the past one and a half years has retraced back to its 23.6% retracement level and has been in uptrend since then making higher top and higher bottoms. The overall weekly chart of natural gas is making a symmetrical triangle pattern and we expect an aggressive break out in the near term. Also, considering its correlation with U.S U crude oil, Crude has retraced more than 61.8% of its fall back in 2008 and is in uptrend making higher tops and higher bottoms. If we look at 14 Days RSI, it is at 53.86 which is averagely bullish and in overall uptrend as well and supporting our expected expect break out to the level of 38.2%($6.670) which is way above our conservative target of $6.090. $6.090
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Monthly Chart - Fibonacci retracement
In the monthly chart of Natural gas above, we have applied Fibonacci retracement of uptrend starting from September 2 2009 009 to January 2010. It has taken support of retracement level of 23.6 % ($5.216) and then the level of 61.8% ($3.780) acted as a crucial support for the past one and a half years.. N Now, it is trading in the range of 38.2 & 50% and this week has taken crucial cial support of retracement level 50 50%. Given its overall trend, it has been in uptrend making higher tops and higher bottoms and is in a symmetrical trading range and we expect an aggressive break out from here that will unfold prices to 23.6% ($5.220) and nd if breaks that resistance then can further rally to $6.090. $6.
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Fibonacci Expansion
In the monthly chart of Natural gas above, we have applied Fibonacci expansion of uptrend starting from September 2009 to January 2010 to project our next levels. levels Natural ral gas is moving in the range of 4.890 4.890-3.671(0 - 38.2%)) from 2010 and now can have a potential upside break break-out,, given its trend and symmetrical triangle pattern, it may now unfold to 61.8% level level, near our target price $6.090.
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