Natural Gas And Companies With Strong Balance Sheets= $$$ in the next 6-12mths

Crude oil prices have risen above US$70, a new high since the cyclical low in February. Natural gas prices have failed to participate. In February, the ratio between the price of one barrel of oil and one million BTU's worth of natural gas was 8 to 1. That gap has since widened to a ratio of 18 to 1. Can the natural gas market continue to be disconnected to crude oil prices?

Most analysts of energy commodities will concede that, in the short run, fundamentals have little to do with energy price futures. It used to be that whenever there was an extreme contango occurred in crude futures (an upward sloping curve in forward contracts or when forward contracts are trading much higher than the near-month), investors were correct to identify that the upward pressure in the near-month would eventually narrow the contango spread. Now, investors in futures appear to be betting that the same will occur in natural gas futures. Maybe ... and maybe not.

The crude oil market is much different than the North American natural gas market, especially while we are at the depths of an economic recession.

The crude oil world is dominated by a small number of countries that dominate exports of crude oil (i.e. OPEC, Russia, Canada, and Mexico). An even smaller number of countries are able to achieve significant growth in exports (i.e. a handful of OPEC members, Canada, and few others). Thus, OPEC's ability to balance the supply/demand fundamentals at any point in time can have a significant impact on average prices, despite the brief extremes we saw at the high last summer and the low this past winter.

Until about five years ago, the North American natural gas market was well connected to the crude oil price, because there was no unused capacity to increase production and the ability to grow production was quite weak. In fact, Canada's supply growth since 1986 represented over 60% of the incremental demand in U.S. over that period of time. And in 2005, Canada's supply growth peaked and has since been falling.

During the past five years, two new phenomena developed. Shale gas production in the Unites States, due to higher prices and new technology, caused U.S. domestic supply to grow rapidly, to all-time record levels.

At the same time, the capacity to import liquefied natural gas (LNG) into the United States was expanded to fill the expected gap from the decline in U.S. production. Now LNG has become a significant supply threat to North American producers during the summer months.

Excess supply of natural gas in the North American market is measured by the level of natural gas inventories, which are currently at record levels for this time of the year.

There are certainly positive signs that are driving the extreme contango in natural gas prices, when you look at winter contracts that are 50% higher than summer contracts. Commodity investors are looking at the collapse in U.S. rig activity which fell to 700 last week from 1600 last summer. They are betting on recovery in U.S. industrial activity. And they are looking at the disconnect between crude oil and natural gas futures.

However there are also signs that the commodity investors may be too early in their enthusiasm. Spot prices for natural gas (that's the physical market) are well below the near-month futures prices, indicating that excess supply could continue to keep prices low for the rest of the storage injection season at the end of October. In Canada, spot prices are below C$3.00 per thousand cubic feet or US$1.00 per thousand cubic feet lower than U.S. spot prices.

Equity investors can play the natural gas price turnaround story by buying shares in gas-weighted companies with strong balance sheets. High debt levels will be a significant drag on capital investing either until higher prices generate higher cash flow, or until investor bullishness allows companies to issue new equity.

Patience will be a virtue in this natural gas cycle.

Credit card companies ordered to repay millions in fees

Superior Court Justice Clement Gascon ruled Thursday on three class-action suits filed by consumers against institutions such as American Express, the Royal Bank of Canada, Toronto Dominion Bank and more...

MONTREAL - Nine banks and a federation of credit unions have been ordered by Quebec Superior Court to pay back millions of dollars in credit card fees charged to consumers when purchases made in foreign exchange were converted to Canadian dollars.

But how and when about a million Quebec card holders will get their money has yet to be determined.

After rendering judgments Thursday in three separate class-action suits involving the Royal Bank of Canada, Toronto Dominion Bank, Bank of Montreal, Canadian Imperial Bank of Commerce, Scotiabank, National Bank of Canada, Laurentian Bank of Canada, Amex Bank of Canada, Citibank Canada and the federation of Desjardins credit unions, Justice Clement Gascon asked that the parties reconvene within 30 days to work out the details.

Consumers will be entitled to a percentage - up to 2.5% - on charges that were converted from foreign exchange into Canadian dollars, including purchases made over the Internet. But that payment could be a long time coming, especially if the banks in question decide to appeal Justice Gascon's decisions.

Lawyers for the banks didn't return phone calls Thursday.

Philippe Trudel, a lawyer representing plaintiffs in two of the suits, said the judgments are huge victories for consumers, since banks have been told to repay approximately $200-million, and also obey the Quebec Consumer Protection Act. Banks had argued they weren't subject to the act because they are federally chartered institutions, Mr. Trudel said.

In one of the class-actions, against Amex Bank of Canada, the plaintiffs argued that prior to December, 2003, Amex didn't inform card users about the commission, let alone tell them the rate. The company simply converted the charge on credit cards to Canadian dollars using an exchange rate that it unilaterally chose. It also applied a commission of between 1 and 2.2%, which was included in the charge in Canadian dollars.

The judge agreed with the plaintiffs, saying that for 10 years, Amex "failed to disclose the commission that it was nevertheless collecting from" consumers. Justice Gascon concluded that the plaintiffs in the class-action suit are entitled to restitution of $13,097,896 in commission paid between March 1, 1993 and March 1, 2003.

The plaintiffs were also seeking $10-million in punitive damages, an amount that Amex lawyers argued was exaggerated and unjustified.

In the end, the judge decided on $2.5 million, or about $75-$100 per card holder.

"While it is true that under the circumstances, the conduct of Amex can hardly be qualified as anti-social or particularly reprehensible or intolerable, it still remains that for an interval of 10 years, it clearly disregarded its obligations under the Consumer Protection Act," the judge wrote.

In the case against the Desjardins group of credit unions, the judge ruled that the fees charged to consumers between April 17, 2000 and Dec. 31, 2007, were illegal and contravened the Consumer Protection Act. He ordered that $28,392,240, plus interest, be reimbursed, but he didn't award any punitive damages. For the other banks, Gascon ordered they pay back different amounts, varying from $4,055,630 for the Bank of Nova Scotia to $36,261,380 for the Royal Bank of Canada.

Some of the banks also have to pay certain cardholders $25 in punitive damages.

Montreal Gazette