By Dave Brown – Exclusive to GasInvestingNews.com

Oil & Natural Gas Corp. (BOM: 500312), India’s biggest energy exploration company, may consider bidding jointly with Vietnam Oil & Gas Group for partner British Petroleum’s (NYSE: BP) stake in a natural gas field in Vietnam to secure fuel supplies. The Indian company already has a 45 percent stake in the venture operated by BP and is seeking to boost its share of gas from the field.

On Wednesday, Oil Minister Murli Deora, who is in Vietnam on an official visit, said that India would be happy to consider bidding for an additional stake that BP may offer.  BP is raising capital to pay for the Gulf of Mexico oil spill, agreed on July 20 to sell fields in the U.S., Canada and Egypt to Apache Corp. for $7 billion and plans to dispose of assets in Pakistan and Vietnam.

Jason Kenney, an analyst at ING Wholesale Banking suggested total assets for BP in Vietnam and Pakistan may be worth $1.7 billion. The Nam Con Son gas project in Vietnam is valued by the company at $1.3 billion; however UBS estimates place the asset in the $966 million range. The objective for BP is to raise about $10 billion selling assets to fund $20 billion of restitution settlements for spill victims demanded by U.S. President Barack Obama.

BP has a 35 percent share in Block 06.1 off the south Vietnamese coast, according to ONGC Videsh’s website. The Indian company sold shares in the Lan Tay field in Vietnam to BP after winning the exploration license for the area in 1988.

Since the area started producing gas in January 2003 ONGC’s share from the project was 1.848 billion cubic meters of gas in the year ended March 2009. ONGC owns two other offshore blocks in Vietnam exclusively, which are not currently producing gas or oil.

The latest developments underscore a general theme from the subcontinent as it has been looking at other areas to acquire oil and gas assets overseas to meet its growing energy demand.  As Asia’s third-largest oil consumer, India has been aggressively scouting for overseas gas and oil assets to meet its supply deficit and is competing with China for fields from Africa to Venezuela.

Gas Prices and Outlook

Henry Hub natural gas prices added 0.149 cents to $4.66 per gallon as data from the most recent Energy Information Administration (EIA) report indicated natural gas in storage rose as expected to approximately 51 billion cubic feet since last week.

The profit from making gasoline may slide to the lowest level in 10 months as faltering U.S. consumer growth hurts refiners that have boosted production in anticipation of an economic rebound. These profits are now being reduced by declining factory production and consumer confidence at the lowest level in a year.  The Standard & Poor’s 500 Index, which commodities in general have tracked as it fluctuated on the pace and expectations of recovery, declined 1.2 percent last week. Yesterday it fell an additional 1.3 percent after Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee that the U.S. “economic outlook remains unusually uncertain.”

According to James Cordier, president of futures brokerage Liberty Trading Group suggests that crack spreads on gasoline, the difference between what producers pay for crude and how much they get for the refined fuel, are poised to drop as much as 75 percent in coming months. These margins, were down 46 percent from the 15-month high of $18.77 on May 13, based on futures prices of $10.07 today on the New York Mercantile Exchange. In September 2009, they reached a low of $2.23.

The Department of Energy (DOE) indicates that refiners have accelerated output by 11 percent since the end of March on forecasts of escalating demand, driving stockpiles to a two-month high as of the week ended July 16. Supplies of gasoline increased 1.1 million barrels in the week ended July 16 to 222.2 million, an 11 week high, according to the Energy Department.

By Dave Brown – Exclusive to GasInvestingNews.com

Green Century Capital Management, a pro-environmental investment fund has released a study that found 12 energy companies this spring faced shareholder resolutions calling for better safeguards against environmental damage from hydraulic fracturing, a drilling technique for natural gas in shale formations that critics say contaminates ground water.

The study comes closely on the heels of British Petroleum’s (NYSE: BP) massive oil spill and underscores concerns about the environmental oversight and safety of drilling, leading investors to demand assurances from energy companies and prompting federal and state lawmakers to call for tighter restrictions on the booming industry.

At a regional level, local officials are urging stricter regulation after reports that hydraulic fracturing, also known as “fracking,” has caused undrinkable water, human sickness, and even animal fatalities.  Many companies and industry analysts disregard these environmental claims, suggesting the evidence has failed to show a correlation between fracking and health.

Some investors are concerned enough to ask companies to go beyond the standards required by regulators in safeguarding environmental issues.  In the recent study, shareholders representing a range from 21 percent to 42 percent of market capitalization have backed pro-environmental resolutions, a significant rise from the historic norm of 5 to 7 percent.

Short-Term Energy Outlook

The Energy Information Administration (EIA) is expecting natural gas production to increase by 1.2 percent this year; however, this may be offset by the most recent hurricane and storm activity forecasts from National Oceanic and Atmospheric Administration (NOAA).   With many meteorologists forecasting a considerable increase in storm activity within the Atlantic region this year, production outages will have a strong marginal effect on gas prices.

The Administration forecasts the Henry Hub natural gas spot price to average $4.49 per million Btu this year, a $0.54 increase over the 2009 average. EIA expects the Henry Hub spot price to average $5.06 in 2011, which is down $0.28 from last month’s outlook.  Retail sale of electricity to the residential sector from April through September is forecast to grow by 5 percent compared with the same period last year. Total consumption of electricity across all sectors is projected to grow by 3.1 percent during 2010 and by 0.9 percent next year.

Natural Gas Future Contracts and Spot Price Movement

On June 29, Natural gas futures declined 2.2 percent as a result of reduced threats of Tropical Storm Alex’s potential risk to large scale energy infrastructure in the Gulf of Mexico. The storm was expected to make landfall in northern Mexico or southern Texas as a Category 2 hurricane. Below seasonal average temperatures in the Midwest and parts of the Northeast and Great Lakes region from Tuesday to Saturday have also reduced pressure on prices; however, regionally fluctuating forecasts will lead to greater market volatility.

On the supply side of the equation the storage volumes remain abundant, placing further downward pressure on prices. Gas drilling activity in onshore shale-rock formations has led to large injections of the fuel into underground storage facilities. Total gas in U.S. storage as of June 18 was 2.624 trillion cubic feet, about 13.3 percent above the five-year moving average for the same week and 0.5 percent below last year’s level for that week.

In London, the UK wholesale spot gas prices surged more than 10 percent after a leak at the North Sea’s biggest field cut Norwegian gas exports.  The sudden news reignited concerns over UK supply with mid term contract concerns over future winter delivery. Britain uses much more gas in winter because two thirds of its homes are heated with the fuel, which is increasingly imported by liquefied natural gas which mainly comes from the North Sea.  The recent jump in prices came after gas production at the Troll A, Kvitbebjoern and Visund platforms were shut down after a leak at Troll A.

With help from Assistant Editor Vivien Diniz

With all of the attention to the petrochemicals industry currently, a recent survey conducted by Resources Investing News has highlighted both oil and natural gas sectors as areas of high interest for investors.  The results indicate that appetite for exposure to oil and gas is fourth highest in demand attribution, behind only the precious metals of gold and silver, and alternative energy source uranium. Underpinning this thesis are long term secular and demographic trends that appear to be inevitable.

Energy is a critical force powering business, manufacturing, and the transportation of goods and services to serve the global economy.  Energy supply and demand plays an increasingly vital role in national security agendas and global economic productivity and output.  It may be surprising that the United States alone spends over 500 billion dollars annually on energy; however, in the context of current events and recent environmental concerns the international community will all be carefully examining energy policies.  Countries will be focused to pursue activities that are instrumental in establishing the safety, reliability, and efficiency of energy supplies in a global marketplace and reconcile energy needs with the planet’s environment.

Oil

Oil is regarded by some as being the current lifeblood of the United States’ economy.  Presently, it supplies more than 40 percent of total energy demands and more than 98 percent of the fuel used in cars and trucks. The Department of Energy’s Office of Fossil Energy focuses on two important concerns over oil – an immediate readiness to respond to oil supply disruptions and to keep oil fields producing in the future; however, current regulatory reforms alone could jeopardize nearly one million barrels of new daily crude production over the next half-decade.

Technological improvements and strategies may be required to find and produce much of this “left-behind” oil, and the National Petroleum Technology Office is developing new exploration, drilling and production processes that aim to protect resources and the environment.  Remaining oil fields are becoming increasingly difficult to find and costly to produce because much of the easy-to-find oil has already been recovered.

In the Gulf of Mexico, a US moratorium threatening a one to two year delay in new deepwater oil projects could lower output by 100,000 to 300,000 barrels per day by 2015.  In other deepwater jurisdictions, including Brazil, Angola and Nigeria, a further 550,000 daily barrels “could be at risk, albeit there are no current indications that permitting in these countries is likely to be affected.

This could provide a strong international challenge as transportation is one of the fastest-growing energy demand sectors and the one associated most closely with oil. This critical point is interesting for oil investors because although many different fuels can be employed to produce electricity, the same is not true right now for transportation; globally, 98 percent of transportation still runs on fuel made from oil.

Natural Gas

According to the stated objectives of the DOE, nine hundred of the next thousand US power plants will use natural gas.   The fuel is easily produced and readily available to end-users through the existing utility infrastructure; natural gas is in the process of becoming increasingly popular as an alternative transportation fuel.  The Office of Fossil Energy invests in research and development of technologies in the areas of natural gas supply, delivery reliability, and utilization.  Through the Strategic Center for Natural Gas, DOE works with industry to develop technologies to support this fuel.

According to many analysts, natural gas will meet a growing share of our energy needs through 2030. Given its abundance and properties as a clean-burning fuel, expanded use of natural gas in power generation can serve economic progress and help advance environmental goals as well.

Until recently, it was not economically feasible to extract natural gas from unconventional sources. However, the emergence of advanced drilling technologies has enabled the economic recovery of a resource once believed to be unreachable.  Many analysts believe the environmental and economic benefits of natural gas are demonstrable, and as the cleanest burning fossil fuel, the potential to reduce the harmful emissions generated by oil and coal are compelling.  With an estimated 100 years supply at current production rates, natural gas has emerged as a strong energy choice in creating a secure and stable energy future.

Encana (TSX:ECA), Canada’s largest natural gas producer is seeking project partnerships that could facilitate the development of unconventional gas fields, with its chief executive announcing that the company could see as much as $2 billion in new investment.  On Monday, Encana’s CEO Randy Eresman, delivered the details at the CAPP Oil & Gas Investment Symposium in Calgary, discussing the company’s performance, strategy and outlook.

Encana is seeking joint venture investments of between $1 billion and $2 billion annually, with $900 million already raised this year, including $1.1 billion over five years pledged in February by Korea Gas Corp (SEO:036460) for a position in the Horn River and Montney shale gas fields in northern British Columbia.  With several other companies involved in the extraction of natural gas from these regions, the deposits are significant and represent the third largest North American natural gas accumulation discovered prior to 2010.  Finding outside investors would help the company develop its shale gas and other unconventional properties in North America. Encana is expecting to double its production of natural gas over the next five years, but additional capital from outside partners could expedite that goal.

The markets have responded positively to this announcement with the company’s share prices appreciating almost 2 percent to a range of $35.28. The company has observed a growth of over 5 percent over the past 12 months.

T.Boone Pickens Promoting Natural Gas

The long time oil and gas executive, T. Boone Pickens, made some cautionary statements on June 15, to suggest that in the wake of the recent oil spill in the Gulf of Mexico, the United States may become even more dependent on foreign oil.  According to his analysis, the United States spent $27.5 billion to buy foreign oil, equivalent to 61 percent of its oil demands in May according to the Department of Energy’s Energy Information Administration.

The implication was that there is currently bipartisan legislation in the House and Senate that heavy transportation fleets could use natural gas to replace the foreign oil, diesel, and gasoline.  “We have a resource in this country, natural gas, that we can use immediately to replace oil for transportation. On an energy-equivalency basis, we have twice as much domestic natural gas as Saudi Arabia has oil,” Pickens said. “It’s clean, domestic and it’s an ideal transportation fuel. We need to put it to work … and now, with a particular focus on heavy duty fleet vehicles.”

Gas Prices

On June 14, natural gas spot prices at the Henry Hub traded at $4.94, the highest price since Feb. 19.  Demand for gas in April and May was about 11 percent higher than during the same period of 2009, according to the June 8^th Short-Term Energy Outlook release from the department of energy. Gas prices at the hub where New York futures contracts are delivered, will average $4.49 per million Btu in 2010 and $5.06 in 2011, the department estimated in the monthly outlook.  Gas has been the biggest gainer in the S&P GSCI Index of commodities over the past month.

Some analysts believe that the 19 percent jump in natural gas prices in the past month may result in some United States utility companies transitioning to coal power, as rising temperatures boost air-conditioning demand.  About 10 percent of power plants, mostly in the Southeastern U.S., can alternate between the two fuels.  Underpinning a switch to coal would reduce demand for gas just as power producers enter the busiest season.  The energy department expects approximately 45 percent of electricity output this year will come from coal plants and 22 percent from gas power facilities.  Gas became cheaper than coal in March, when prices dropped to a six-month low; however, as gas prices have rallied since mid-May, coal prices have declined by about 1 percent.

With help from Assistant Editor Vivien Diniz

The Henry Hub natural gas spot price ended trading on May 28, at $4.31 per million Btu (MMBtu), an increase of $0.09 or 2.1 percent over the previous session. Many analysts suggest that natural gas prices are historically low due to a supply surplus with last week’s production data lending support to this thesis.

Contrary to expectations of production declines because of a reduction in drilling activity last year, domestic marketed production remains strong at over 60 Bcf per day, according to estimates from BENTEK Energy Services. In particular, production increases have been recorded from unconventional gas fields including the Marcellus Shale in the Northeastern Appalachian region and the Haynesville Shale in Louisiana.

Overall supply levels during the report week were about 2.9 percent higher than last year. Front month gas prices are down more than 22 percent this year. For the week ended May 21, U.S. natural gas supplies stood at 2.3 trillion cubic feet, almost 16 percent above the five-year average.

Prices are expected to rise, initially pushed higher by increased gas demand for cooling, as Senior Meteorologist Joe Bastardi of AccuWeather.com predicted this summer to be the “hottest summer since 2005 for much of the nation”  and later from increased demand in industrial and power generation.

Algerian Gas Exports May See Improvements Following Political Restructuring

The restructuring of Algerian national oil company Sonatrach amidst the suspension of the chief executive officer and the vice presidents for marketing, upstream and pipeline transportation in January has led to a dismissal of Algerian Energy Minister Chakib Khelil. Some analysts suggest that the Ministry for Energy and Mines was marred by the failure of the Minister’s efforts to clamp down on illegal activities by the senior officials, persuade fellow gas exporters to shore up prices by cutting supply and open the Algerian hydrocarbons industry to foreign investment.

In a May 28 cabinet reshuffle, President Abdelaziz Bouteflika appointed former Oil Minister Youcef Yousfi to replace Khelil.  During Khelil’s leadership, Algeria began exporting liquefied natural gas to the U.K.’s Isle of Grain in 2005, the first such shipment in 40 years. He was also responsible for the construction of an underwater pipeline that will transport 8 billion cubic meters of gas a year from Algeria to Spain starting in September.  Analysts would like to see Yousfi make entry terms more favorable for exploration and production activities for international oil companies and increase the  price flexibility of gas exports.

Royal Dutch Shell Acquiring U.S. Gas Producer

Private-equity investor Kohlberg Kravis Roberts has agreed to sell most of Pennsylvania-based East Resources, an explorer of natural gas, for $4.7 billion in cash to Royal Dutch Shell (NYSE:RDS.A).  East Resources’ primary activity is focused on the Marcellus Shale, with about 650,000 net acres of highly contiguous, operated acreage.  Overall, the company possesses 1.05 million net acres of acreage and produces about 10,000 barrels oil equivalent per day, mostly in natural gas.

The move into shale gas allows Shell to remain competitive with industry giant Exxon Mobil Corp. (NYSE:XOM), which in December paid $31 billion for XTO Energy Inc., the largest U.S. natural gas producer. Analysts expect the deal will increase Shell’s daily gas production by 7.5 percent.

Shale gas has offered the United States a greater energy supply with a smaller carbon footprint. It accounts for 15 to 20 percent of U.S. gas production, but that number is expected to grow to four times as much in coming years.  The gas has attracted companies even when prices and energy demand were higher, so with technological advances in drilling capabilities it is even more compelling and easily attainable.

British Petroleum’s (NYSE:BP) Chief Executive Officer Tony Hayward has called shale gas a “complete game changer.”  Earlier this year at the World Economic Forum Mr. Hayward said, “It probably transforms the US energy outlook for the next 100 years. It’s yet to be seen if it can be applied globally.”

Market news

What else can be said about the natural gas market? Futures seem to have reached a rough stabilization in the US$6.50 – US$7.50 range, and winter approaches.

Barring a major depression of the sort where people make shoelace soup, winter means more demand for natural gas. So, unless you have decided to invest in a bindle-heavy portfolio, it is time to ignore the financial statements for a while and wait for recovery.

Company news

Chesapeake Energy (NYSE:CHK) has agreed to sell a 32.5 per cent stake in its Marcellus Shale prospects to Norway’s Statoil Hydro (NYSE:STO) for US$1.25 billion cash and US$2.125 billion in drilling costs. Chesapeake must be breathing a little easier after the sale, but its stock price did not reflect this.

Chesapeake has been labouring under a significant amount of debt used to finance rapid expansion in drilling. Rumours are still swirling about a potential takeover of the company, but this sale may discourage a merger or acquisition, at least temporarily.

Circle Oil, (LSE:COP), an Irish junior, has reported a natural gas find in its Moroccan explorations. Depending on further information, the find could be good news for Circle, Morocco, and European consumers.

You can find third quarter results for Southern Union, (NYSE:SUG) Corridor, (TSX:CDH) and Gastar (TSX:YGA). On balance, most firms reporting have had good to great third quarters. That being said, the fourth quarter reports promise to be the most informative of the years. Barring exceptional results, South Parse will link to Q3 reports to preserve space for more in depth market and international news coverage.

International news

Hurriyet has an excellent piece about Turkey-Iran gas cooperation, noting that Turkey’s Energy Minister is due to travel to Tehran in a bid to diversify its sources of natural gas imports, risking penalties from the American government. The country intends to invest some $3.5 billion in Iran’s natural gas industry, a significant sum for the Islamic Republic. It appears the deal was more-or-less ready to be signed in mid-August, but the two countries have waited until after the American Presidential election to finalize it. It is entirely possible that this news will slip under President Bush’s and President-elect Obama’s radar.

As this meeting approaches, Russia’s Gazprom is indicating that prices of gas sales to Turkey will fall 20 per cent next year. Perhaps Russia is trying to keep its stranglehold on Turkish energy markets.

Meanwhile, Russian Prime Minister Vladimir Putin has reassured the world by stressing that his country does not intend to form a natural gas cartel similar to OPEC. However, Russia will hold talks with Iranian and Qatari emissaries today (Wednesday) to encourage more cooperation between the three biggest exporters.

This “High Technical Committee” meeting is to take place in Doha, and the participants are to be Iranian Oil Minister Gholamhossein Nozari, Qatari Oil Minister Abdullah bin Hamad al-Attiyah and a high-ranking Gazprom executive. Intriguingly, Putin also spoke recently about the need for more cooperation between oil exporters. The plot thickens.

There are two interlocking triads here, the Turkey-Iran-Russia consumer-supplier competition and the Russia-Iran-Qatar exporter relationaship. As always, geopolitics, energy and business intertwine in Middle-East interstate relations. South Parse will keep you posted.

Market news

The high US$6 – mid US$7 NYMEX future price seems to be relatively stable given the incredible volatility of other commodities and market indices.

Though this stability is preventing gas investors from riding the same emotional rollercoaster that most other investors have boarded, it has had a deleterious impact on the overall market.

The U.S. Department of Energy has noted that inventories are up 12 billion cubic feet for last week, significantly less than most analysts were predicting.

Terry Engelder, a keynote speaker at the upcoming Pennsylvania Natural Gas Summit, has calculated that the Marcellus Shale could hold seven times more gas than previously estimated. Marcellus Shale has become an integral part of many North American gas companies’ portfolios, so this news is good for most significant players.

Company news

Talisman Energy Inc. (TSX:TLM) is not as lucky as its name would imply. Though its third quarter numbers were quite strong, with net income of CD$1.4 billion, more than triple last year’s number, it is planning for a huge reduction in drilling and exploration next year. Norval Scott of The Globe and Mail explores what this means for Talisman, other Canadian gas producers and the province of Alberta in an excellently reported piece here.

Money quote:

But since a record 25,000 oil and gas wells were drilled in Western Canada in 2005, that motor has spluttered as lower commodity prices, higher costs and a stronger Canadian dollar made exploration less profitable. Only around 18,000 wells will be drilled in 2008, and that number is expected to slump to around 17,000 wells next year as Alberta’s new higher royalty rates, which take effect on Jan. 1, further discourage spending.

Carrizo Oil & Gas (NASDAQ:CRZO) has released its Q3 numbers, with revenue up to $55.5 million from $30.3 million during Q3 last year, largely on the strength of higher prices and more production. Carrizo has also establish a joint venture with Avista Capital Partners to acquire and develop a Marcellus Shale play. Both partners will pay up to $150 million into the venture, making it fairly significant to the region.

International news

Congratulations to President-elect Obama. Though his campaign has supported a windfall-profits tax on hydrocarbon producers, his policies are likely to have a beneficial effect on natural gas companies, as the Congressional Democratic leadership is bullish on CNG vehicles. Bloomberg has reported that a bill establishing tax incentives for companies building CNG infrastructure is likely to be reintroduced when the new Congress convenes in January.

The European Union Energy Commissioner Andris Piebalgs was in Ankara this week. Piebalgs was conducting talks with Turkish officials to speed up work on the massive Nabucco pipeline. The Nabucco pipeline is designed to supply Europe with up to 30 billion cubic metres of gas per year, offering a viable alternative to Russian gas.

Speaking of Russian gas, the Russian News & Information Agency is reporting that that country’s exports to Europe were down “8.3 per cent to 12.6 billion cubic meters in October from a year ago”, largely due to reduced demand. RIA is projecting that the decline will continue through at least December.

Market News:

It seems as if natural gas futures have hit a band of support in the $7.25-$7.50 range, which is good news for investors as winter approaches. Structural factors suggest that natural gas will become dearer in winter, especially if the current low prices have a significant effect on high-cost or marginal production. This seems to be the rationale for the rise in the week’s trading to date.

Though Goldman Sachs has lowered its winter NYMEX forecasts from $9.50 down to $7.60, that lower estimate may yet be revised as big players curtail operations.

Company News:

Chesapeake Energy, (NYSE:CHK) which has already cut back its exploration spending drastically, is now also shelving its plans to have a web presence to explain Barnett Shale drilling to Texans near its projects. Though the website, Shale.tv sounded like an innovative way to offer information, markets like this one are not kind to unproven ideas and less than obvious value-adders.

Hydrocarbon companies in Pennsylvania under the aegises of the Pennsylvania Oil & Gas Association and the Independent Oil & Gas Association of Pennsylvania formed a joint Marcellus Shale Committee to lobby the state and sub-state governments as well as represent companies with an interest in the exploration and exploitation of this formation.

Russian energy giant Gazprom has sent a delegation of executives to Anchorage, Alaska to discuss whether it could help the state transport gas to the lower 48. It is as yet unclear whether there will be any common ground for future discussions, but Gazprom still has interests in North American sources and markets.

Peterbilt Motors, a subsidiary of PACCAR inc (NASDAQ:PCAR) and Westport Innovations (TSX:WPT) have announced the creation of three different LNG engine configurations for its transport trucks. Last week South Parse looked at a number of news items concerning natural gas-powered engines, so Peterbilt is following a growing trend that appears to be approaching critical mass.

International News:

Russia’s StroyTrans Gaz and state-owned Syrian Gas Company have come to a $71 million transportation deal. The terms will see Story Trans help finance a pipeline from Aleppo to the Turkish border where it could link up with pre-existing gas infrastructure routes to Europe. There is also a strong political component to the deal, as Syria and Russia are both skeptical of the United States’ position on Iranian nuclear enrichment and American policy in the region as a whole. Indeed, Bashar al-Asad’s government has the distinction of being one of the few Arab dictators not receiving political, military or financial help from America.

Iran and the United Arab Emirates’ Crescent Petroleum have come to a curious agreement over Iranian exports from the Salman field through the sub-gulf pipeline. The $2 billion, 25 year contract is roughly four times more expensive than Crescent’s current Qatari supplies. Though there is certainly a benefit to locking in long-term supply deals, one must question whether that benefit is so large. Intriguing.

Market News:

The American Energy Information Administration (the U.S. Government’s register of official energy statistic) is still forecasting an increase in home heating costs over the winter. The EIA did note that its figures were subject to change as new information about the extent of the financial crisis emerged. The report emerged as natural gas futures on the NYMEX were sliding below the $7 mark, down from their July highs in the low $13s.

Everyone should read this piece in the National Post detailing the crash of energy stocks and the future outlook.

Money quote:

From the bull market high of 470 in June this year, the index has fallen 40 per cent. That puts this energy bear market in a league with the index’s worst bear market declines, in 1998, 1986, and 1981.

Wilf Gobert concludes optimistically, predicting that renewed investor confidence (whenever that develops) will boost the energy sector on the TSX once again.

Company News:

TEL Offshore Trust (NASDAQ:TELOZ) announced that Hurricane Ike shut down oil and gas production at its two most valuable properties in the Gulf of Mexico. TEL warns that the fourth quarter distribution to unit holders is likely to be “severely negatively impacted” and that the damage may be so extensive as to prohibit any distribution.

EnCana Corp (TSX:ECA) is participating in federal-provincial joint hearings over a plan to drill some 1275 wells near Medicine Hat, Alberta. The site is currently the home of Canadian Forces Base Suffield’s National Wildlife Area, necessitating the participation of both levels of government. (Natural resources are provincial jurisdiction, and the Canadian Forces Base is obviously of the federal government’s purview, as are National wildlife areas). The hearings conclude October 18th.

Pepco Energy Services, a subsidiary of Pepco Holdings (NYSE:POM) has secured a three year contract with the City of Washington’s Transit Authority to supply natural gas for the authority’s fleet of natural gas buses. Washington Metropolitan Area Transit Authority (WMATA) will require some 2.6 billion cubic feet of CNG for its extensive bus fleet, and Pepco should do quite well from the deal. WMATA was an early adopter of CNG engine technology, and if Pepco plays its cards right, they will build a valuable reputation as a dependable supplier.

International News:

Norway is projecting a 3.8 per cent increase from 2008 numbers in oil and gas output for 2009. The country’s North Sea formations have become crucial to the economy, supplying more than a third of government income. Natural gas is expected to increase from 96 billion cubic metres to 106 billion cubic metres, just over 10 per cent.

The city government of Lima, Peru is constructing a huge new highway project in the metropolitan region that includes significant investment in natural gas buses. Regular readers will note that South Parse has been bullish on natural gas engines since its inception. Though they have not caught on in North America to any significant degree, natural gas engines are approaching a tipping point in the rest of the world, especially South America.

Market news

A mild rebound for hard-hit natural gas futures has developed over the past few days.

Like the Dow Jones, oil prices and the Asian market indices, natural gas futures are also in a state of flux. The instability is fairly easy to source: investors are scared, confused and reactive. Each new political drama in the United States is a source of jubilation or abject terror. The Senate’s effort to resuscitate the executive’s financial sector rescue plan is restoring confidence, hence the rebound.

Through this lens, it is apparent that Tuesday and Wednesday’s rebounds are the product of the “dead cat bounce”. This rather morbid but splendidly explanatory term indicates that a rapid drop in value will be followed by a ricochet upward from the floor.

Linguistic oddities aside, the party is over for natural gas and commodities in general. The Philadelphia Oil Service Sector Index lost a huge portion of its value (roughly 15 per cent) over September and nearly 30 per cent since July.

Carrie Tait of the National Post has a useful article outlining which natural gas projects were most at risk from the price slump. The short version is that exploration budgets as a whole will be smaller and unconventional projects (read shale gas) will be under much greater cost pressures and may be suspended.

Company news

A subsidiary of Chesapeake Energy, (NYSE:CHK), one of the players which Tait specifically mentions in the above article, has signed a 10-year transport contract with the Fayetteville Express Pipeline being built by Kinder Morgan Energy Partners and Energy Transfer Partners. BP America (NYSE:BP) will have a 25 per cent stake, too.

South Parse is a little late coming to this news but One Exploration Inc (TSX.V:OE.A) is to acquire Cruiser Oil & Gas (TSX.V:COG) at a share price of US$1.15 for a total of US$14.8 ml. Consolidation and acquisition are likely to ramp up in the coming months if prices do not dramatically turn around. If you are of a speculative bent, keep an ear to the ground for rumours, especially those concerning ventures. Just like smart investors, well-managed companies like to buy on the downturn. With stocks and spot prices in a similar slump, now is the time to acquire new properties and reserves.

International news

Lots of stuff happening internationally the past weeks. The usual “petro-rascals” (Iran and Russia) and general basket cases (Nigeria and Venezuela) have all been active.

Nigeria’s government has mercifully begun to implement a privatization plan for Pipeline Products and Marketing Co. and Nigeria Gas Co, two subsidiaries of Nigerian National Petroleum Corp. Currently, both are wholly owned subsidiaries, but it remains unclear how much privatization will be allowed to occur.

South Korea has concluded negotiations with Russia to import some 10 billion cubic meters of gas per year from 2015-2045. The significance of this deal is threefold. First, this quantity approximates one fifth of the country’s projected demand for natural gas, potentially cornering South Korea into Europe’s Gazprom problem. Second, the pipeline will traverse the Democratic People’s Republic of Korea, giving that country a potentially huge leverage point over its neighbours. The deal also signifies the return of active Russian involvement in Northeast Asia, which China will not particularly like.

Venezuela’s erratic energy policies were restored a modicum of order when PDVSA, the Venezuelan energy company received some $19.6 billion in foreign investment into natural gas projects. Companies involved included Chevron (NYSE:CVX) Gazprom, Eni SpA (NYSE:ENI).

Iran is trying to build a multi-billion dollar gas pipeline to Europe. Though Iran is politically problematic, Europe is desperate to reduce its reliance on Gazprom and Russia. South Parse will track the story as it develops.