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ENERGY SECTOR UPDATE
by Joseph Dancy, LSGI Advisors, Inc.

Adjunct Professor, SMU School of Law
August 22, 2006

The following developments in the energy sector last month continue to support a bullish case for the sector:

The average injection for the week is roughly 60 bcf. This is the first withdrawal in July ever, and represents the demands placed on natural gas peaking power plants during the ongoing heat wave.

While natural gas storage is well above normal (see AmericanOilman.com gas storage chart) we think this is positive for the natural gas market, and expect natural gas injections over the next several weeks to be well below average.

Demand for natural gas at current prices has been well above what many expected, in part due to the high temperatures across the nation. We expect this incremental demand will help stabilize natural gas prices in the futures market at or above $6 per mmbtu � which should help stabilize the stock prices of natural gas producers and service providers.

China's economy continues to grow at double digit rates according to the data released last month, and their economy is not as energy efficient as many in Europe or North America.

China's statistics bureau said the economy grew at an unexpectedly torrid annual rate of 11.3 per cent in the second quarter of this year � far above the official targets and the predictions of most economists.

Much of the growth in world oil production since 2002 has been from Russia � but according to Raymond James & Associates �Russian oil production posted minimal growth since 2004� and they see little acceleration in Russian production capability over the next few years.

In another recent note Raymond James points out that Mexico produces 4% of the world's oil and has the largest field in the Western Hemisphere � Cantarell, located in the Gulf of Mexico. Production trends in Mexico indicate that �it is too early to tell whether Mexican production has already set an all-time peak, but based on the last three years of data, it seems that the peak is fast approaching, if not already here.�

workers from the region.

© 2006 Joseph Dancy

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Joseph Dancy, Adjunct Professor, Oil & Gas Law, SMU School of Law, Advisor, LSGI Market Letter | Joseph Dancy's Book Reviews | E-mail

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