By Duncan Sutherland- Exclusive to Gas Investing News

Company news

The headline this week is obviously Shell (NYSE:RDS.A) and the Iraqi government putting ink to paper on a US$4 billion joint venture deal that will see the company collect flareoff from oil production in Southern Iraq’s Al-Basra province.

In even better news, Shell opened a new office in Baghdad, a good sign that the country is beginning to find stability. Shell employees, however, refused to indicate where their office was.

Some heartening but not entirely germane news came from Toyota (NYSE:TM) as the carmaker announced that it would exhibit a Compressed Natural Gas (CNG) Camry sedan at the Los Angeles Auto Show in November. CNG vehicles are in wide use in parts of Europe and South America, but are almost non-existent in North America (except Utah). Martin Zimmerman of the Los Angeles Times’ Up To Speed blog has noted that California’s November election ballot will feature Proposition 10 to grant a US$10,000 rebate for CNG car purchases in the state. As the largest auto market in North America, the passage of this initiative could be a tipping point for CNG.

For Canadian investors, Bloomberg has a good wrap-up of activity on the TSX which goes into more detail than this space would fit.

Market news

So futures are hovering in the mid to high US$7. 00 range on the NYMEX, ($7.92 as South Parse went up) but are not settling. Overall, we are in for an interesting few weeks. Several factors are contributing to the uncertainty.

Before the financial crisis began to disrupt markets, oil and natural gas were cooling off from their near-historic prices. Over the last two weeks, mass sums of money have shifted away from financials towards commodities, and then retreated as the parameters of US government intervention began to emerge. In the most basic analysis, it is clear that much of the money has preferred to remain in commodities, with natural gas being a favourite. It is difficult (and likely foolish) to predict how investors will react to future developments on this front, so perhaps it is better to outline some broader fundamentals.

First, natural gas supplies are up. The U.S. Department of Energy released numbers noting that the inventories were up 51 billion cubic feet for last week (ending September 19). As an addendum to this, Chesapeake Energy Co. (NYSE:CHK) has begun to scale back on its exploration spending, and expects other companies to follow suit in the upcoming months. Much of this is due to reappraisal of potential profits as prices slid.

Second, natural gas demand will increase as North America and Europe enter winter. Reasoning that natural gas is often used for heating of homes, some of the best minds out there suggest that colder weather will prompt people to use more natural gas for heating. Not to be too glib, but structural factors such as this are largely absent from much of the coverage and predictions.

Third, recovery from the recent hurricanes has been slow. The Minerals Management Service noted today that “approximately 56.4 per cent of the natural gas production in the Gulf is shut-in”.

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