Natural Gas and Crude Oil seen strong despite falling gas prices

Sun Jan 8, 2006 11:33 AM ET
By Ben Berkowitz

NEW YORK, Jan 8 (Reuters) - Warm weather and recovering production after a rough hurricane season are dragging down natural gas prices from last month's peak, but investors in gas producers are holding their positions on the belief that prices will remain at current historically high levels.

Since hitting a record peak of $15.78 per million British thermal units (mmBtu) on Dec. 13, the price of natural gas (NGc1: Quote, Profile, Research) has fallen nearly 37 percent.

Yet in the same period the AMEX Natural Gas Index -- made up of some of North America's top gas producers such as Williams Cos (WMB.N: Quote, Profile, Research) , Apache Corp. (APA.N: Quote, Profile, Research) and El Paso Corp. (EP.N: Quote, Profile, Research) -- has fallen just 2.4 percent.
In fact, over the last year every member of that index but one is up at least 10 percent, and seven of the 15 members are up more than 50 percent.

Investors say that the decline in natural gas prices is mostly immaterial because the price is still high -- the fuel traded between $2 and $6 from 2000 through the start of 2005. And no one was building long-term valuation models for natural gas companies on prices in the $12-to-15 range.

"The fact that the price has fallen back below $10, I don't think has a long-term impact on the fundamental valuation of the companies," said Ben Halliburton, chief investment officer of Tradition Capital Management. Halliburton said he sees gas prices in the $8-to-$10 range through the end of the decade....

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