Is Natural Gas About to Bottom?

This morning I came across an interesting slide from Ultra Petroleum’s ($UPL) latest investor presentation at the Howard Weil Energy Conference:

F&D cost stands for “finding and development cost” which means that UPL’s average cost to find and develop its natural gas resources stands at roughly $1.60/Mcfe of gas. Moreover, UPL is one of the lowest cost operators in the natural gas E&P industry, however, its all-in cost ($2.88/Mcfe) is still above the current front month $NG_F futures price:

These slides help to reinforce the potential for a deceleration in the growth of supply over the coming years due to the current depressed gas prices. If companies such as UPL can barely produce acceptable levels of ROE at current prices then you can be sure that less economic producers will be scaling back on new projects and production. If one combines a moderation of the growth of supply with the tremendous potential for increased demand over the coming years due to the huge BTU cost advantage relative to other energy sources, it is possible to see some light at the end of today’s dark tunnel.

One of my latest and favorite follows Andrew Nyquist has highlighted a DeMark buy setup which indicates a potential bounce for natural gas ($NG_F $UNG) sometime between April and July. To top it all off I have noticed many pundits proclaim that they “have no doubt” that natural gas will have a “1 handle” very soon. This could make for a perfect storm that finally culminates in a bottom to the nearly four year downtrend in natural gas prices.