Historically, the oil to gas ratio has been in the 8 to 1 area. In terms of heat content, the oil to gas ratio is around 6 to 1. But oil is used primarily for transportation in North America, limiting direct competition between the two fuels. Currently, gas storage is at a record high. Moreover, industrial demand is very weak due to the recession. Therefore, I expect near dated natural gas contracts to continue weak into the fall, with weather creating volatility. That said, we should see supply start to come off later this year as a result of dramatically lower drilling activity. The long term fundamentals for North American gas are not as positive as for oil. Technology is unlocking lots of gas in shale plays. I view gas as a trade. By weakness this year for a price recovery sometime next. Once price recovers to something north of $7 or $8 MMbtu activity will ramp and growing supply could become issues within 18 to 24 months depending on weather. And gas is much more volatile than oil, with weather being the primary driver of demand.
-M
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