Why I am a Gas bull

[RadMan24]

I don't really disagree with what you are saying here. My question is this: if we indeed get a shortage and prices go up to 6 or 7 what prevents these guys to take the rigs back out, do the whole drill baby drill thing,  bump up supply and crash prices again?

 

This is a great question and it really is at the core of the gas problem.

 

If you give a texan $1 they will drill a hole....you really can't trust these guys, they often don't pay attention to the economics.

 

That said, what will change it going forward, has to be shareholders (and other stakeholders like banks creditors).  The CEOs will be forced to come around and focus on projects with positive IRRs otherwise they will be kicked out.  The shareholders buying these companies right now are value/capital discipline oriented, and they won't stand for growth for the sake of growth.  Creditors will also tighten standards. 

 

The good thing about crashes like this is it will force capital discipline into the energy sector.  Every crash is the same, people act irrational, people get burnt, the trash is thrown out, everyone learns their lesson, and rational thought sets in (often to the other extreme).

 

I am not even a nat gas bull i just think it will be like a reversion to the mean...low prices will cure low prices.

 

 

Well banks are reigning in capital for oil and gas names. If nat gas shoots up to 6 in a few years, the producers who are left are likely going to be able to enjoy high returns, before a bunch of companies get credit and ramp up again. Cyclical industries do pay off, just got to pick the ones who will survive and flourish in the up turn. --Assuming the industry is positive on demand growth, something like coal gotta be super careful.