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June 11, 2003
A Perfect Storm for the Natural Gas Industry
In a series of interviews yesterday with the Wall Street Journal, Dow Jones, Bloomberg and Associated Press, Dan Tulis, CFA, senior portfolio manager for the ELCO funds, characterized the natural gas outlook as an approaching “perfect storm.”
The combination of a growing demand for natural gas, a clean burning fuel, and shortfalls in natural gas production coupled with historic low storage levels due to the past year’s unusually cold winter, could result in continued high prices in the foreseeable future. Alan Greenspan highlighted this concept in his testimony before congress, as he believed the potentially higher price for natural gas could be a macro liability for the economic recovery, potentially offsetting current fiscal and monetary stimuli. Mr. Greenspan’s testimony indicated there were no short-term solutions that could prevent the coming “perfect storm,” other than cooperative weather.
Mr. Tulis indicated with 70 percent of new homes being built today will use natural gas and almost all new power plant construction fueled by natural gas, the increasing demand, which has become ever increasing inelastic, suggests a higher valuation for this sector. His favorite stocks in this area are Burlington Resources, Chesapeake Energy, Rowan Cos, EOG Resources and Enerplus Resources.
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