HardAssetsInvestor

Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hello everybody, and welcome back to HardAssetsInvestor.com. Well, not long ago, famed oil man Boone Pickens said that we would never see $2 gas in his lifetime. Well, as far as I know, Boone’s still around. But guess what? We are now at a $2 handle for natural gas. Here to talk about that is John Woods, head of Integrity Energy and over from the NYMEX. John, thanks a lot for stopping by.

John Woods, head of Integrity Energy (Woods): Glad to be here.

Norman: What about that comment? I think it was back in 2004. We did spike up. We had Katrina. But wow. I mean, here we are down in a $2 handle. Did you ever think, as somebody who was in the marketplace, that we’d see such a low price?

Woods: Not initially. I mean, you had those high prices right after Katrina. And then you had Boone coming out. And he’s pretty much a guru when it comes to that stuff. And all of a sudden it just sort of settled. If you looked at what’s happened since then, we really haven't had a major storm in that Gulf area. We’ve had very mild winters, very mild summers for the past few years. So you have this storage just building and building and building, and it’s a trickle-down.

Now you have your speculators coming in, saying, “All right. We have all this storage right here. You know what? We’re going to start hitting it a little bit.” And, sure enough, it just slowly moved its way down. I mean, if you look on any kind of chart, it’ll just show a slow downward spiral.

Norman: But it’s quite a collapse.

Woods: Oh yeah.

Norman: And it’s interesting you mentioned the speculators. Because often, when we talk about speculators, we’re looking at the speculative activity from the other way around, which pushes prices up.

Woods: Right, yeah, right.

Norman: So you're saying they’ve been part of the action …

Woods: Oh, most definitely.

Norman: Or part of what has been driving the price lower.

Woods: I guess you’d call them the good guys for pushing the gas down. And crude oil, they’d be the bad guys. But, for the most part, you see a lot of people putting a lot of pressure on this market right now. We expired just the other day, and we were above $3 for our stock contract. And here we are trading $2.50 today.

Norman: Now, you mentioned the inventory situation storage, as they call it in natural gas. And at the time when Boone made that comment, there was concern that we were experiencing what would be long-term tightness in supply. But, is it purely … you mentioned the weather; is that all it is?

Woods: Well, you’ve got to remember, natural gas is a domestic product. We’re really not affected by what happens overseas. We had a good run-up. That was really based on crude. We found it. It was just like this euphoria, I guess. Speculators said, “All right, if this is going up, I’m buying natural gas because that’s cheaper, relatively speaking.” And it just slowly went up.

And then, all of a sudden, you have to look at it. We have a lot of gas out there. And you know what? You're going to have to get out of it. And we just basically came down to Earth.