With winter approaching, and the general consensus being that it will be colder than last, natural gas prices will be sure to rise due to greater demand. However, estimates of natural gas prices differ significantly depending on the source. The U.S. Energy Information Administration, or EIA, recently released its "Short-Term Energy and Winter Fuels Outlook," in which it estimates that gas prices will reach $3.35 per MMBtu in 2013.
However, other estimates are much higher; for example, analysts at Morgan Stanley envision scenarios where the price of gas could run up to $5 per MMBtu next year. The realized price will greatly influence a number of natural gas producers, including Ultra Petroleum, which currently has a breakeven price of $3.10-$3.20 per MMBtu. If the prices are closer to the EIA's estimates, a company like Ultra can continue to brave the headwinds. On the other hand, if Morgan Stanley is right, this company could be set to feast on outsized profits similar to 2008 and 2009 when the company was trading around twice its current value.
In this edition, energy analyst Joel South discusses the outlook for Ultra Petroleum as well as other companies that could rise as natural gas prices start moving north.
Joel South has no positions in the stocks mentioned above. Taylor Muckerman has no positions in the stocks mentioned above. The Motley Fool owns shares of Devon Energy and Ultra Petroleum and has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2013 $25.00 calls on Chesapeake Energy, short JAN 2014 $15.00 puts on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, long JAN 2014 $30.00 calls on Chesapeake Energy, short JAN 2014 $20.00 puts on Ultra Petroleum, long JAN 2014 $30.00 calls on Ultra Petroleum, long JAN 2014 $40.00 calls on Ultra Petroleum, and long JAN 2014 $50.00 calls on Ultra Petroleum. Motley Fool newsletter services recommend Ultra Petroleum. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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