Wednesday, March 20, 2002

Natural Gas: A Rising Business

NEW YORK - In late December 2000, one-month natural gas futures spiked to a ten-year high of $10 per million btu. But, as the familiar oil patch story goes, the boom times led to bust as production surged and demand tapered off. April gas futures now trade at $3.26 per million btu.

Still, that's an improvement from a 52-week low of $1.83. "We think prices will trend up for the remainder of the year," says Martin King, energy commodities research analyst with Calgary, Alberta-based brokerage FirstEnergy Capital. "But they're certainly not going to explode." King expects prices to firm from an average $2.74 in the second quarter to $3.11 by the end of this year.

King suggests the price improvement is primarily a function of contraction in supply. On the other hand, Christopher Ellinghaus, energy analyst with New York's Williams Capital Group, thinks increasing demand, driven by an economic recovery, will spur prices. He estimates that mild weather and a recession-induced slowdown in industrial activity depressed demand for natural gas by up to 2 trillion cubic feet in 2001.

Whether driven by supply or demand, rising prices will benefit companies such as Western Gas Resources (nyse: WGR - news - people ). The Denver-headquartered company produces, processes and transports natural gas through operations in the Rocky Mountain, Southwest and Gulf Coast regions.

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