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Britain's Natural Gas Supply


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With the price of natural gas having recovered slightly from recent lows and apparent large quantities being produced from new technologies in North America, it is easy to forget how fragile the supply of gas can be in other parts of the world.  Gas is difficult to ship from one part of the world to another and hence has a market price that is much more fragmented than oil as it depends greatly on its location. 


England's North Sea production of natural gas is declining quickly.  The supplies that are being brought in by ship are being used up quickly during the present shortage created by BP's shut down for maintenance of its North Sea gas production.  Although BP's present maintenance is a short term problem, the decline in North Sea gas production appears to be very steep, and is expected to require imports of gas to Britain to be increased from 50% of its domestic needs presently to 75% by 2015.




I think that the potential of natural gas is only now beginning to be taken seriously, in part as a result of the recent takeover of XTO by Exxon.  With the recent split of the old Encana shares into ECA and CVE, it is interesting to note that both ECA and CVE have been touted as being potential takeover targets.  In the case of ECA, it is their very large natural gas assets that are attracting attention.  Prem's recent purchases of SandRidge, with its natural gas focus, has also been on the minds of Board member.  In addition the shares of the drilling companies like Precision Drilling seem to have taken quite a jump in price in the last week.



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  In addition the shares of the drilling companies like Precision Drilling seem to have taken quite a jump in price in the last week.



I had mentioned that total energy was having quite a run up a while back just to see if anyone else here follows it at all. I would suspect their run-up may be more to do with the compression side as they have proprietary rights on a compressor that is supposed to be more efficient especially in the shale gas wells. They also have a drilling department that has had a pretty low utilization rate the last few quarters. But if I'm remembering right they don't have any horizontal drilling capability. Unless an upturn in conventional gas drilling is also expected.



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The reality is that if you want to get green quicker, you replace the coal fired apps with either gas or wind/solar, & add new apps that are some combination. All else equal, the natural gas price should rise as demand increases, & supply depletes.


The gas price is not rising as there's a one-time 'new discovery' glut in NA, & you cannot (efficently) arbirtage the physical commodity accross markets. For the UK, a rising & mild above market price for gas over the next 4-8 years is quite probable.


PDS market pricing is just mildly less silly than it was. Kind of hard to trade at far below BV when its pretty clear that they aren't going under, & their auditors have just finished impairment testing the goodwill (part of y/e audit).




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I really like PD.  They are in a sweet spot right now.  They have raised capital, taken charges for idling some of their fleet, and drilling will likely start to pick up.  The combination of o&g prices rising, less drilling for rapidly depleting gas, and the move toward more cogen should bode well for PD. 


Safer than trying to determine whether x-company has enough reserves, or if they have lied, or calculated correctly, or need to make an acquisition to keep pump numbers up.  Basically with PD you get a claim on few percentage of all the O&G drilling in North Am, and a substantially larger relative percentage in Canada.


Wait for it to reach 30 or so and sell, and wait for the next round. 

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After looking some of rig count info released last week I calculated the percent decline as compared to 2008 in working rigs by month for 2009. 















Forgive the decimals and all, I copied and pasted them of course from the spreadsheet.  So, indeed, at least for Canada, the picture is much better than it has been for all of 2009. 




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