Morningstar Advisor - June/July 2012 - (Page 32)

Sector Rap Natural Gas Reaches Capitulation By Philip Guziec Supply glut, warm weather, and rock-bottom prices challenge producers. With the cost of gasoline spiking over $4 per gallon and natural-gas prices falling to 10-year lows, energy concerns have been in the news a lot this year. On April 11, I sat down with two Morningstar equity analysts—Mark Hanson and Avi Feinberg—to dig deeper into what’s going on in the oil and gas sector and what it means to investors. Philip Guziec: Update us on the situation with natural gas. It’s a very different story today than it was just a decade ago. Avi Feinberg: Today, natural gas is about $2 per 1,000 cubic feet, which is the lowest price in a decade. What’s going on? Well, there’s a confluence of factors here. There is certainly growing production, with shale plays and other unconventional production. Year to date, production is up about 5% in the United States. At the same time, we had a historically warm winter, so demand is off by about 5% so far this year. Combine those factors, and you have record-low natural-gas prices. The question is, How long will this go on? That’s a tough question to answer. Guziec: We’ve seen headlines about the United States having a 100-year supply of natural gas. Is that really the case? Mark Hanson: Some people say there’s 100 years of supply. But it’s hard to really know exactly how much. Certainly, there is a wealth of supply, and it’s a blessing and a curse. On the one hand, firms have found ways to unlock the source rock. Traditionally, they went after pockets of gas; now, they’re actually 32 Morningstar Advisor June/July 2012

Table of Contents for the Digital Edition of Morningstar Advisor - June/July 2012

Morningstar Advisor - June/July 2012
Letter From the Editor
Be Worth Remarking About
How Important Is Stewardship?
From West Point to Points East
Where a Fund’s Secrets Lie
Getting Fund Directors on Board
Managers Prep for Housing Rebound
Four Picks for the Present
Investment Briefs
A Hedge Against Career Risk
Natural Gas Reaches Capitulation
Family Matters
How Good Stewardship Predicts Superior Performance
Stewardship Goes Back to the Fundamentals
On the Go for Fixed Income
Where Shareholders Ride First Class
Dangers Lurk in Exchange-Traded Notes
Stocks on Sale in a Strong Market
A Good Steward Is Easy to Find
Our Favorite Mutual Funds
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
Buffett Rule’s Biggest Losers

Morningstar Advisor - June/July 2012