Weir off on broker downgrade and depressed natural gas prices

Industrial engineering group Weir is today again one of the worst performers in the FTSE 350, in an apparent reaction to a negative research note out from JP Morgan Cazenove.

JP Morgan analysts have today lowered their view on Weir to neutral, citing uncertainty about the near-term development in demand for so-called fracking equipment.

The above comes on the back of profit warnings from some of the US based companies in Weir's sector as well as record low prices for natural gas.

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Perhaps worth taking into account in this regard, in the United States the price of natural gas is now at $2.40 per 1m British thermal units. That is the lowest price in a decade and the cheapest ever compared with an equivalent amount of oil, at about 14% of the price, according to the Financial Times' (FT) Lex column last Friday. A little over six years ago natural gas prices peaked at 140% of oil's price.

Who are the immediate culprits? The shale gas boom and a very mild winter the FT wrote but, more importantly, the lack of infrastructure necessary to export the glut of natural gas which has resulted from drilling at non-conventional oil and natural gas fields.

Hence, explained the newspaper, "with certain shale fields also producing liquids priced off oil, the marginal cost of production (hence production rises and prices fall) for their gas is literally zero. Thus, other gas drillers are forced to drill wells at a loss to honour lease terms. Indeed, gas, once considered the champagne of hydrocarbons for its versatility and cleanliness, is being flared off as a waste product in fields such as the Bakken (in the US state of North Dakota) that do not have gas pipeline access."

As of 09:56am shares of Weir are falling 3.5% to 1,886p.

AB