Marc Bustin Ph.D., F RSC, is the senior researcher for unconventional oil and gas for Casey Research. 

 Considered to be one of the top authorities in the world, Marc is the go-to expert for multinational oil and gas conglomerates, and is brought in to help evaluate finds around the world. Marc has reviewed more projects on his own than some exploration teams put together.

 Recently, at the Casey Research Energy Summit – a two-day event showcasing the top minds in the energy industry – a small group of investors became privy to Marc’s take on the future of natural gas… his prediction for where prices are heading next year… and some of the companies he believes will profit when natural gas takes off.

 For an excerpt of Marc’s presentation, read on…Marc Bustin (Casey Research):

What You Need to Know About Natural Gas

Natural gas prices have plummeted. Natural gas storage is at a maximum. Producible gas reserves are up 35% in the United States. Demand for natural gas is down because of the economy.

Then suddenly a new-found U.S. natural gas producible reserve is suggesting that the U.S. in fact will be self-sufficient or close to it as soon as 2030. 

 Why are all of these things happening? 

A bit of it, of course, is due to the drop in the overall economy, but it has a lot to do with the concept of gas shale, and that’s really what we are going to focus on today.

Where does all this gas come from? 

The gas comes from organic matter that is within the rocks. It evolves, bacteria work on it, it generates gas, and most of that gas and oil end up in reservoir rocks, such as the sandstone. 

But the rocks with which the organic matter is in the first place, are fine-grained rocks that we use the loose word “shale” for. These are the rocks that have the organic matter that’s cooked, that generates the gas. The gas is generated from the fine-grained rocks and it migrates out into our reservoir rocks, which is our conventional gas production. 

If we were to look at the shales in more detail with an electron microscope, you would see that it’s very fine grained and the pores are small. If we look at sandstone, the porosity and permeability (the ability of gas to flow through the rock) is great, and that’s why we can produce it at commercial rates. Traditionally we haven’t been able to produce any gas from shales because there are no pathways for the gas to go out at a very fast rate. Until recently we’ve pretty much ignored these rocks. 

If we blew up the pore in a sandstone to the size of the Eiffel Tower – by comparison, the pores in shales are about the size of an eyelet on the compound eye of a bee. In other words, they’re really, really small. There’s a tremendous size/scale difference and that’s why the gas tends to be retained.

The reason that gas migrates out of the rocks is that they’re surrounded by water. All the other pores are filled with water, and because gas or oil is lighter than water, there is a buoyancy effect. It migrates until it’s trapped.

But shales are so fine grained, you don’t need a conventional trapping mechanism. The gas does not move out of these shales because of capillary pressures, and also because the gas is actually absorbed into the mineral and organic surfaces. 

That means when we find these shales and these types of deposits, they are not localized. They are very, very laterally extensive, so you don’t really have any exploration risk in terms of finding the shale. The exploration risk is really in whether or not you can develop it.

The economically recoverable gas from the shale is now possible due to development and success of horizontal drilling technology – the development of fracking technology. Higher gas prices in the past gave us the confidence and allowed us to develop the technology. A huge factor is confidence. We know we can do it economically, so we are willing to spend the big dollars that are required to drill and frack one of these wells. 

Technology has now made it possible to produce gas from rocks that we couldn’t produce gas economically 10 years ago. 

In the past we were drilling more and more wells that produced less and less gas. All of a sudden, things have changed with these shale wells. We are drilling fewer wells, and each well is producing more and more gas – because of the frack technology and the wells being horizontal. Things have changed completely.

Finding and development cost

How much it costs to produce the gas, of course, is going to be equivalent to the resource size – the producible resource size. The bottom line is, there’s lots of gas that could be produced at relatively low prices. For example, EnCana’s projection of producible natural gas is absolutely enormous. 

What’s happening in the rest of the world?

The rocks are a little bit different in North America than everywhere else, but there certainly are similar shales in Europe. North Africa has wonderful-looking shales, and so do a few other places – Eastern Australia, for example. There is no reason to suspect they won’t be equally successful producing gas from tight rocks in those areas, as we have been in North America. 

There are certainly lots of gas shale potentials in Europe and many companies like Conoco, Exxon, Shell are there – Shell is drilling some gas shale wells in Sweden, for example. Other companies are working in England. 

So all of a sudden we are looking at a world where natural gas is perhaps not in a shortage anymore. 

Part of the problem is, we have been a little bit too successful – if you’re a service company, a drilling company, or a producer in North America. We’ve been so successful in finding gas,  we’ve driven the price way down. The price, in fact, has been too low to sustain drilling and, in some cases, production.

We’ve got a market, we’ve got demand, and we have supply. U.S. natural gas storage is at a maximum. We’re filled up; no more natural gas, please… for the time being at least. 

So what does it mean for the price of natural gas?

Since gas prices have taken a major dive, so has the rig count. The rig count is how many rigs are actually drilling. Currently in North America, we’re probably at a 35% to 40% usage of the rigs. This is way down, and the implication is important for the gas price.

Low gas prices means, suddenly we’re drilling a lot fewer gas wells. No one wants to drill anymore.

Currently, in order to maintain U.S. production, we have to add between 17, 18, 19 Bcf (billion cubic feet) additional gas per day. At the current rate of drilling, we’re adding 9 Bcf a day production, so there’s obviously a shortfall.

And a shortfall means eventually the price of gas has to start going up. 

Right now, there are a huge number of drillable wells – prospects all ready to be drilled. As soon as the natural gas price gets up above a certain level, these wells will suddenly become economic, and people will start developing them. 

So it’s not like we are going to find new “stuff,” we’re just going to start producing the “stuff” we already know exists. 

Which companies are going to lose and which are going to win with the new metrics of natural gas? 

Losers:

• Gas-weighted companies are in trouble today.
• Small companies with debt, I think are finished – if they’re gas producers.
• Companies only operating in North America are going to have a tough time. If you’re offshore, you’re probably in a lot better shape. 
• Companies with no technical expertise – producing gas from shale requires a team of people who actually understand what they’re doing.

Most small companies just can’t play in that sandbox. When things go bad, they go bad. You have to be able to drill a number of wells successfully to be successful. If you can only drill one well and you have no operational experience, you should just take your wagon and go home. That leads me to the winners. 

Winners:

• Big companies with some capital to play with.
• Companies with operational experience, or companies that have the depth to develop that operational experience.
• Companies with early land position and low finding and development costs or finding and exploration costs.
• Technically competent companies.
• Small companies who have decent land and have big-company partners. 

Some small companies got an early land position, opening the door for big companies to farm in on them. These are perfect situations. The big company is paying the load, and the small company will still get the advantage.

My prediction for gas prices

In my opinion,  gas will be $6 or $7 next year. Prices will then soften down to $4 or $5 at the end of next year. Ultimately, the best buys for investors will be small-caps that are farmed out or big companies that have long-term positions.

As mentioned before, Dr. Bustin’s expertise in unconventional gas and oil is unmatched in the industry. If you’re interested in receiving Marc’s entire presentation from the Casey Research Energy Summit… learning from his considerable acumen in natural gas… and getting the scoop on which stocks he believes are poised to profit from the inevitable increase in gas prices, here’s your opportunity.

What’s more, you’ll also get the inside perspective of every energy expert at the summit – on subjects ranging from alternative energy to oil and natural gas, to lithium.

The information revealed at the Casey Research Energy Summit has been, up until now, only available to the small group of investors in attendance.

Now you, too, have the opportunity to arm yourself with the knowledge you need to prosper in the challenging years ahead. Click here for details.

Why you must buy this “world dominator” The Daily Crux

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Chicago Fed index lower in August Calculated Risk

Throughout the “sh*t hitting the fan” events of last fall, and the subsequent policy response, we’ve listened intently on what this Canadian had to say. The picture he paints today is one of bearish conviction. That’s exactly the reason he’s come under recent criticism as his ilk of ivory tower economists have started calling an end to this recession.

Though we don’t think he has anything to prove, he released a special report reaffirming his key points. You can read it in full here. But if you don’t have the time to peruse the twenty-two page (slightly wonkish) document, we’ve broken down the basic takeaway for you.

The equity markets have moved too far, too fast, and a correction is coming. Rather than buy into this rally, you should look at commodities. That’s because David believes that since 2001commodities took off on a secular bull market run.

Also, rather than hold US dollars, Rosie bets that the Canadian buck is a safer bet due to Canada’s smaller national debt (26% of GDP vs. 62% in the US), smaller budget deficit (-3.4% of GDP vs. -11.2% in the US), stronger banking sector (no Canadian bank needed a bailout), lower unemployment, and an economy more reliant on commodity exports like lumber, oil, natural gas and precious metals.

But the scariest–for holders of US dollars—forecast Rosie makes is that the US has yet to use a power policy tool: the devaluing of the greenback.

As Obama continues to take pages out of FDR’s playbook, he’s yet to devalue the dollar as FDR did in 1933. Rosenberg doesn’t say that the US policy wizards will directly devalue the dollar. Rather, he thinks it will happen by the expansion of the Fed’s balance sheet and the creation of freshly printed dollars.

We think he’s dead on about this call. The US’s “strong dollar” policy has become the latest oxymoron to enter the American vernacular. There is only one direction the value of the US dollar is going over the long-term—down.

Where exactly should you invest amidst this economic malaise? Here are the seven places to park your cash. Not surprisingly, our favorite precious metal tops the list.

1.) Gold

2.) Commodities

3.) The Canadian dollar

4.) Resource sectors of the stock market

5.) US sectors that have high foreign exposure (materials, tech, staples, healthcare)

6.) Canadian sectors that benefit from lower import costs (consumer stocks) but lose export competitiveness (manufacturers)

7.) Canadian bonds (a higher Canadian dollar will keep inflation low, hence reinforcing positive fixed income returns)

Physical demand was also supportive for the precious metal, traders said, who saw the jewellery demand picking as as the festive period in India, one of the top gold consumers of the world, approches.

Spot gold was at $991 an ounce by 1121 GMT, slightly up from $990.95 an ounce late in New York on Friday, when gold hit a two-week low of $984.70 an ounce.

“The stronger dollar is the reason which pushed gold below the $1,000 an ounce level,” said Eugen Weinberg, Commerzbank analyst said. “On the other hand, we’d expect a pick-up in physical demand if prices decline ahead of the festive season.”

Gold’s inverse relationship with the dollar over the past few weeks has become stronger. It is often considered an alternative asset to the greenback, while a higher dollar makes commodities expensive for holders of other currencies.

The dollar fell against the yen but rose against higher-yielding currencies including the euro and the Australian and New Zealand dollars. But the euro trimmed earlier losses to trade at $1.4655.

“The dollar feels like it has to go much lower from where it is and gold could benefit from that,” said Afshin Nabavi, head of trading at MKS Finance.

Over two weeeks ago, gold hit $1,023.85 an ounce, its highest in eighteen months, within a striking distance of its record high of $1,030.80 an ounce struck in March 2008.

BARGAIN HUNTERS

But bullion’s failure to stay above $1,020 an ounce level has disappointed several investors and prompted an unwinding of long positions, which in the U.S. hit a record high for a third straight week.

“We’re seeing some long liqudiation from the speculative side of the market. The major support is at $975 an ounce,” Nabavi said.

The non-commercial net long position in gold futures on the COMEX division of the New York Mercantile Exchange stood at an all-time high of 236,749 lots for the week ended Sept. 22, figures from the Commodity Futures Trading Commission showed.

“Having said that the reason why gold is gradually falling and not crashing is bargain hunters and physical buyers are picking up the dips,” Nabavi said.

U.S. gold futures for December delivery was up 0.14 percent to $993 an ounce from $991.6 per ounce on the COMEX division of the New York Mercantile Exchange. On Friday, the contract fell $7.30.

The world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust , said its holdings stood at 1,094.107 tonnes on Friday, unchanged from the previous business day.

Silver was lower at $15.96 from $16.00

“Silver is generally vulnerable to Comex profit-taking,” said analyst John Reade at UBS in a research note. “The fact that the surge in Comex speculative longs over the past three weeks has struggled to lift silver prices further flags a specific downside risk over the coming weeks.”

Platinum was at $1,273 from $1,272.5 and palladium was at $289 from $288.

Sept 28 (Reuters)

Weaker-than-expected U.S. housing sales and durable goods orders on Friday drove U.S. stocks lower, and world and European stocks followed that trend on Monday.

Leaders of the Group of 20 rich and developing nations pledged on Friday to bring the global economy back into balance but their statement contained few surprises and investors are already looking ahead to U.S. employment data at the end of this week.

Global equities and other higher risk assets have risen sharply in the last six months on growing optimism about the economic outlook, but markets are starting to run out of impetus, analysts say.

“Investors are a little bit reluctant to add to their risk positions,” said Koen De Leus, economist at KBC Securities.

“The market is going to have a very good look at macroeconomic numbers this week. If some of these figures disappoint, then the market is going to go down further.”

Analysts are starting to question whether the global recovery is V-shaped, or if it could be W-shaped, with a second dip to come.

The MSCI world equity index <.MIWD00000PUS> was down 0.52 percent at 282.94, bringing losses since Sept 22 to 3 percent.

U.S. stock index futures , however, were indicating a slightly stronger open on Wall Street after the market scored a third consecutive day of losses on Friday.

The FTSEurofirst 300 index <.FTEU3> hit its lowest in nearly three weeks before trimming losses to 982.53, down 0.14 percent from the U.S. close.

GERMAN STOCKS UP

German stocks <.GDAXI>, however, rose 1.3 percent with particularly strong gains in utilities E.ON and RWE , on expectations of longer lifetimes for German nuclear power plants as a result of the German election.

German Chancellor Angela Merkel’s conservatives won a weekend parliamentary election with the pro-business Free Democrats (FDPP), enabling her to end her awkward four-year-old partnership with the Social Democrats (SPD).

“(This) government provides the greatest opportunities for equity market-friendly reforms compared to other party combinations,” said Tammo Greetfeld, equity strategist at Unicredit, in a client note.

The yen, typically regarded as a safe-haven currency, surged to an eight-month high against the dollar as Japanese officials waved off any plans to stem the currency’s rise.

The yen later gave up some gains as Finance Minister Hirohisa Fujii changed gear on his comments during the course of the day, saying yen gains were becoming one-sided just hours after saying the rise was “not abnormal”.

The dollar fell as far as 88.26 yen before trimming losses to 89.35, down 0.31 percent.

However, the dollar hit a 2-1/2 week high against an index of currencies <.DXY> and a 13-day high against the euro as the U.S. currency also attracted safe-haven flows.

Funds are starting to shift money home ahead of the quarter-end later this week, analysts say.

Crude oil dipped 20 cents to $65.82 a barrel .

Euro zone government bonds also benefited from safety trades, with 10-year yields briefly hitting a one-month low.

December Bund futures were up 5 ticks, trimming earlier gains.

Sept 28 (Reuters)

Xerox Corp will buy Affiliated Computer Services Inc for $6.4 billion in a cash-and-stock deal that expands the copier company into technology outsourcing and data management.

Xerox shares fell 13.4 percent to $7.77 while ACS shot up 16.7 percent to $55.06.

Abbott Laboratories said it would buy the drugs unit of Solvay in a $6.6 billion deal, giving Abbott full control of its Belgian development partner’s cholesterol treatments and exposure to emerging markets.

Abbott stock rose 3.7 percent to $49.11.

“Deal announcements are helping the market off to a good start, especially as we had a bit of selling off last week,” said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

“People were waiting for a time to get in, and now, they have it.”

With Monday’s gains, the Dow Jones industrial average is up more than 15 percent for the quarter so far, which would make it its best such period since the fourth quarter of 1998.

A Jewish holiday observed Monday and the end of the third quarter two days later could translate into thin volume and volatility as fund managers reposition their assets amid fewer market participants, investors said.

The Dow Jones industrial average <.DJI> rose 118.28 points, or 1.22 percent, to 9,783.47. The Standard & Poor’s 500 Index <.SPX> gained 14.76 points, or 1.41 percent, to 1,059.14. The Nasdaq Composite Index <.IXIC> jumped 35.48 points, or 1.70 percent, to 2,126.40.

GenTek Inc shares soared nearly 40 percent to $37.75 after the maker of specialty chemicals and vehicle engine components said it agreed to a takeover by a subsidiary of private equity firm American Securities LLC for $411 million in cash.

The Dutch biotechnology firm Crucell said Johnson & Johnson bought 14.6 million new Crucell shares for over $400 million as part of a flu vaccine development deal

China Unicom <0762.HK>, that country’s No. 2 mobile carrier, said Apple Inc’s popular iPhone would be sold in China starting in October at a retail price of about $730.France Telecom’s Orange also said it would sell iPhones later this year.

Apple shares edged 1.3 percent higher.

The Federal Reserve Bank of Chicago said its National Activity Index was minus 0.90 in August, down from a revised minus 0.56 in July, but its three-month moving average of economic indicators improved for the seventh straight month to its highest level since June 2008.

Sept 28 (Reuters)

The dollar gave up most of its earlier gain against a basket of currencies, boosting the appeal of oil and commodities to investors. European stocks firmed and U.S. equity futures pointed to a higher opening.

“It’s making some progress back up, largely due to the dollar,” said Rob Montefusco of Sucden Financial. “At the same time, we haven’t seen demand pick up and we need that to draw strength back into this sector at the moment.”

U.S crude was up 8 cents to $66.10 a barrel by 1308 GMT, after earlier falling as far as $65.41. London Brentwas down 11 cents to $65.00.

Iran test-fired a type of missile on Monday which defence analysts have said could hit Israel and U.S. bases in the Gulf region, state television reported.

The drills coincide with increased tension in Iran’s nuclear dispute with the West, after last week’s disclosure by Tehran that it is building a second uranium enrichment plant.

Tensions over Tehran’s nuclear programme have supported oil prices in recent years. The country is the second-largest oil producer in the Middle East.

In late 2008, Iran threatened to block the Strait of Hormuz, through which about 40 percent of the world’s globally traded oil passes, when tensions rose in another row with the United States around the nuclear work.

Even so, sluggish oil demand, reinforced by some lacklustre economic data from the United States last week, continued to command investors’ attention.

“The Iranian situation is not having much influence. If it was, we’d be back towards $70 again,” said Christopher Bellew, a broker at Bache Commodities in London.

Oil prices posted their largest weekly decline in around 2-3 months last week, pressured by government data showing U.S. crude oil inventories had risen, suggesting demand remains weak.

U.S. durable goods orders dropped by the largest amount in seven months while a rise in new home sales was less than forecast, according to data from the U.S. Commerce Department on Friday.

Sept 28 (Reuters)

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Traders took advantage of a dollar rally in the prior session to sell on views the Fed will signal plans to maintain loose monetary policy well into 2010.

Currency investors are also bracing for G20 leaders to discuss rebalancing the global economy this week, a process that would almost certainly require a weaker dollar.

A document obtained by Reuters showed how Washington would urge G20 leaders to launch a new push this year to get debtor nations like the United States to save more and exporters like China, Germany and Japan to spend more.

“If you take the view that too much of U.S. growth has been domestically driven, the next logical step is to say an orderly decline of the dollar — it’s not in anyone’s interest to see a collapse — in many ways makes sense,” said Tom Fitzpatrick, chief technical analyst at Citigroup in New York.

“And at the end of the day, the U.S. has a zero interest rate policy and the highest fiscal deficit in peacetime while (foreign investors) are holding a lot of dollars, so the path of least resistance for the dollar is down,” he added.

The euro was up 0.8 percent at $1.4794 after options-related demand and strong Asian buying pushed it above $1.48 for the first time since September 2008. The dollar fell 1 percent to 91.09 yen and 0.9 percent to 1.0231 Swiss francs , near a 14-month low touched earlier.

Sterling rose 1.0 percent to $1.6375 while the New Zealand dollar surged more than 2.0 percent to a 13-month high after dairy exporter Fonterra raised its estimated payout to farmer shareholders. Fonterra accounts for some 7.0 percent of the New Zealand economy.

With no major economic data on the calendar, traders said $1.4825 may be the next target in euro-dollar, with many predicting an eventual move back to $1.50.

“Every time we get to a round number in euro-dollar, we’ll probably try to chip away on the way to $1.50. But for now $1.4825 is the next line in the sand, and then we’ll have to wait and see about $1.49,” said Steven Butler, head of FX trading at Scotia Capital in Toronto.

DOLLAR IN FOCUS AT G20?

European Central Bank Governing Council member Axel Weber said on Tuesday recent moves in currency markets were “not out of line” given the euro zone’s economic performance relative to other areas.

Some said this suggested the ECB was comfortable with the euro’s level and was a green light to push it even higher, especially in light of the U.S. proposals to put fixing global imbalances on the G20 agenda in Pittsburgh this week.

But others said there is still a risk of dollar bearishness engulfing the market and selling turning into a rout.

“A discussion at the G20 on currencies, and especially the dollar, is not only appropriate but essential, as this move could accelerate swiftly,” said Maurice Pomery, managing director at Strategic Alpha in London.

Sept 22 (Reuters)

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