12-17-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (12/14) energy settlements:
Natural Gas: Jan '08-$7.025
Jan-Mar '08-$7.12
Summer '08-$7.39
One Year Strip-$7.46

Last week's close was very weak with the Jan. contract settling below a trendline that has provided support for the life of that contract. Without a rally this week, Jan seems destined to trade lower. Judging by the enormous increase in open interests, there is a very large bear spread play going on with substantial long positions in summer '08 gas and accompanying shorts in Jan-Mar '08 which should help to drive down the prompt month price.
This December rally was the smallest percentage run up in the history of the NYMEX at only 8%. Two previous diminutive rallies were in '97 and '04 at 11%.

If the Q1 percentage decline from the Q4 high matches the average of the past 5 years, we'll have a low that is very close to the one we had last year. While you need to have your triggers in place to buy some future gas, a bottom near the end of January looks more likely from a technical perspective than it does in the next 10 days, but stay ready since no one will "ring the bell" to tell us when the bottom has arrived.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

12-10-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (12/7) energy settlements:
January NYMEX gas closed: $7.155
Winter (Jan-March ‘08): $7.22
The NYMEX one-year strip $7.54, 2-year strip $7.90, 3-year $8.03
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.86, Last Summer: $6.79
Last winter: $7.16
Crude oil: $88.28, #2 oil $2.504

The historical tendency for natural gas this week is for prices to increase. With warmer than normal weather and storage so full that many storage holders are already beginning to baseload it into their supplies to make sure they get it out, it’s hard to paint a bullish scenario. If it does rally, it will be because commercial end users are buying from large speculators who are building an impressive short position. Commercial end users owned 354,480 contracts at the end of November but currently own 402,177. Why the utilities, etc want to buy now is a mystery to me and because we don’t have transparency into OTC markets, I can’t be sure that they haven’t placed offsetting bets on other exchanges, but since the end of October NYMEX open interest has increased from 741,551 contracts to 841,926 while prices have declined more than a dollar, which means that there are more sellers in the market than there are buyers, and I want you to hold off on being a buyer yourself until we see lower strip prices. Current prices still carry too much premium to the 2 and 3 year averages.

Looking ahead, Indonesia’s state-owned oil company has decided to reduce its annual supply of LNG to Japan, the world's biggest LNG importer, from the current 12 million metric tons to 2-3 million tons, and reduce overall LNG exports from 15 million tons down to 5, as its production goes into greater decline. The reduction will deal a serious blow to Japan’s long-term energy security at a time when global LNG demand is surging.

In a nearly related story, Panama will build two new three-chamber locks at the Atlantic and Pacific ends of the canal that are large enough to allow the passage of LNG tankers as large as 150,000 cu m. The $5.2-billion project will be completed by 2014. In its current configuration, the canal can accommodate only the 17 LNG tankers ships that are 100,000 cu m or smaller. The enlargement could open up new trading options for Trinidad, Chile, Japan, Korea, Qatar …………..the world.


Please feel free to call me to discuss any questions you may have about your specific energy plan.

12-3-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (11/30) energy settlements:
January NYMEX gas closed: $7.302
Winter ’07-’08: $7.33
The NYMEX one-year strip $7.55, 2-year strip $7.86, 3-year $7.97
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.86, Last Summer: $6.79
Last winter: $7.16
Crude oil: $88.71, #2 oil $2.515

November weather was mild with minimal storage withdrawals as the EIA reported gas storage at a record 3.528 Tcf as of 11/23. That is 106 Bcf higher than last year at this time and 301 above the 5-year average. Gas consumption rarely reached 80 Bcfgd during the month.

Domestic LNG receipts are negligible as Europe has begun to take all Atlantic Basin shipments. This is normal procedure for wintertime. The US sets the floor for global LNG prices since we are the only country in the world that generally imports LNG out of opportunity rather than necessity thanks to the best gas storage system in the world.

With such bearish fundamentals, one would expect prices to fall further now, but the tendency during December is for gas prices to run up mid month and then settle lower by month’s end. This has occurred for 17 consecutive years so I strongly advise that you do not buy gas during the mid-month rally.

Last year’s January contract settlement nearly coincided with the lowest price for the 2007 strip, so in anticipation of another potential end-of-year low it would be prudent get all “powers that be” in regards to gas purchasing and agree on where you want to set your triggers to buy longer term gas. Commodity prices tend to “return to the mean price” during calm times and the average monthly settlement price for the past 2 years is $6.86. Advisable targets for setting triggers to purchase the 2008 strip range from $7.25 to $7.00. And no one will “ring the bell” to tell you when the bottom is in for gas.

European consumers will pay up to a 17% increase for gas provided by Gazprom in 2008 as it announced that western European prices would rise to $300-$350 per thousand cubic meters. At 35.1 cu. feet to the cu. meter, we’re talking about up to $10/Dt NYMEX equivalent for gas.

Dubai is set to launch an LNG futures exchange. This would allow buyers and sellers to establish long-term contractual prices required to secure investments in production and receipt facilities, as well as a vehicle to unwind long term fixed priced deals. The new contract could also give the world's top LNG suppliers, as well as the Goldman Sachs types, a single pressure point to manipulate the global price of a major energy resource.

Production from Mexico’s two biggest Gulf of Mexico oilfields has decline over 15% in the past year alone and shows signs of irreversible depletion. Poorly managed nationalized oil companies in Mexico and throughout South America will cause continued pressure on oil prices in ’08 as New World oil production lags behind its potential. Venezuelan production, which is currently 2.5 MM bbl/d, could have been as much as 6 MM bbl/d if it had remained in the hands of the majors.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

11-26-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (11/23) energy settlements:
December NYMEX gas closed: $7.70
Winter ’07-’08: $7.92
The NYMEX one-year strip $7.93, 2-year strip $8.17, 3-year $8.24
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.953, Last Summer: $6.79
Last winter: $7.16
Crude oil: $98.18, #2 oil $2.70

As gas expired the day after Thanksgiving at $7.70, I was reminded that last year it closed the day before Thanksgiving at $7.70. It’s just another reminder that the trading patterns this year have been very similar. December gas expires this Wednesday and it looks like we will close out slightly lower than the ’07 settlement of $8.318. Keep your triggers in place to buy $7.50 down to $7.25 or accept the expiration price for December gas. Keep the current trading range in mind as you plan future purchases. Over the last 92 trading weeks prices have settled above $8 only 17 times (twice during ’07) and below $5.50 only 12 times (once ’07), with only one monthly settlement above $8 during that period.

After the December contract expiration, the tendency is for gas to rally during mid-December. Please do not make a fear based purchase of future gas during that rally. Last year, the low for Q1 prices arrived on December 28th. I don’t expect that to happen this year, but anything can in this market so it is time to gather the decision makers together and determine what you will do if gas prices come to your longer term buying targets.

As we watch crude oil toy with the $100 mark, it reminds me of the difficulty in trying to set parameters to establish what a fair value should be for any commodity. History has shown us that markets can go far higher than we ever expected and vice versa, far lower than we dreamed. As we approach the Q1 low, it is a time to reassess if you are a budget driven gas buyer or a low cost buyer. Since Katrina and Rita, the fear premium built into future gas prices has made hedging for a year or more an expensive practice that has been rewarded only briefly during the 2nd and 4th quarter run ups. In our southeastern markets, with the exception of the Katrina-Rita timeframe buying interstate basis month to month has always been cheaper than hedging it on an annual basis. So, the deck is stacked against the cautious, while Monday morning quarterbacks proliferate among those who would benchmark the performance of the poor gas buyer.

When I peer into my crystal ball for 2008, I see more domestic production, more LNG supplies, and new pipelines connecting stranded gas to the interstate system. It’s a recipe to become a bear, but something new has been injected into the mix. The combination of a weak dollar and internationally traded LNG filling our marginal supply needs has me concerned. At 8 Euros, gas is worth only $5.37 to Europeans, or better stated, if they are willing to pay 8 Euros, we’ve got to pay $11.92 to match them, and the greenback doesn’t look to get any stronger as we sell more debt to finance the Iraq War. Fortunately, the old European standard of pricing gas in a 6:1 ratio against crude oil is vanishing but no new system has yet emerged. The marketplace will watch with great interest to see if their new pricing standard is based upon associated products such as fertilizer and ammonia. I’ll have more to say on this topic, as well as discussions about where the one-year strip price could trade during the Q1 low.

What does a rise in gasoline prices mean to the US economy? According to “The Economist”, a one cent rise in the price of gasoline equals a $1.2 billion reduction in disposable income and results in a $600 million decline in consumer spending, so the $0.80/gallon premium we are paying over this time last year is a mammoth “tax” on Americans. But, as badly as higher gasoline prices affect our economy, it is less than the impact from tighter credit and falling housing prices. According to the same article, residential housing makes up 1/3 of all household wealth at $21 trillion. A 10% decline in housing prices has a far greater affect on consumer spending that the “oil tax” but together they make another “perfect storm” that we must withstand.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

11-19-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (11/16) energy settlements:
December NYMEX gas closed: $8.001
Winter ’07-’08: $8.24
The NYMEX one-year strip $8.16, 2-year strip $8.34, 3-year $8.34
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.953, Last Summer: $6.79
Last winter: $7.16
Crude oil: $95.10, #2 oil $2.587

Happy Thanksgiving! Even as we survey all the craziness that surrounds us, we have so many reasons to give thanks.

Natural gas is trading in a manner very similar in action and price to last year. The only difference of concern is the net long position held by Commercial traders, usually indicative of an impending price increase, but perhaps they are just getting set for the traditional December rally. Last week’s settle above $8 was only the 2nd this year and it’s worth noting that the only expiration above $7.60 in the last 21 months was last December.

Throughout the life of the NYMEX gas contract, the January contract price has increased about 34% from the post-Thanksgiving low until roughly mid-December. If I take out 4 anomalous years dating back to 1995, the average upswing is about 17% or about $1.30 in 2007 terms. This is important to remember if your goal is to delay purchasing any gas for January or beyond in anticipation of an early Q1 low. In the past, this rally has caused some people to make “fear” purchases of late winter gas only to regret it when prices decline. Keep triggers in place to Buy December gas at $7.50 to $7.25 or accept expiration.

Don’t expect a Christmas gift from Congress. The farm bill which includes an amendment that would close the so-called Enron loophole by boosting the CFTC’s oversight of exempt commercial markets failed in the Senate last week, probably derailing its passage before year’s end.

Our abundant coal reserves could be used for future power generation, which would free up natural gas supplies for industrial and commercial use, but coal plants already account for nearly 40% of all U.S. carbon dioxide emissions. In spite of our efforts, mastering the technology to build a CO2 sequestered coal plant is outside of our reach right now. Tampa Electric Co. has shelved a $2 B, 632 Mw coal gasification power plant that was being built to meet baseload generation needs, stating that the investment was too risky. For perspective, the construction cost per/Kw is 60% greater than a new nuclear plant. TECO already owns and operates the only working integrated gasification combined cycle (IGCC) plant, a scant 260 MW unit that has been in service since 1996 and was mostly paid for by the Energy Department's Clean Coal Technology program.

The nuclear power industry will have to step up its mining and processing operations after years in hiatus. There are 440 commercial power plants, 284 research reactors and 220 marine reactors that require uranium to fuel their operations, and last year they used nearly twice the output of all the uranium mines in the world. Mining capacity fell behind after the Cold War nuclear arms production ground to a halt. Enough uranium was stockpiled to feed existing reactors for many years, so during the 80’s and 90’s little mining occurred. Worldwide uranium demand is roughly 150 million lbs per year. More than 100 new reactors are planned worldwide: 21 in the U.S., 30 in China, 11 in Japan, 20 in India, and 42 in Russia.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

11-12-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (11/9) energy settlements:
December NYMEX gas closed: $7.897
Winter ’07-’08: $8.18
The NYMEX one-year strip $8.14, 2-year strip $8.33, 3-year $8.34
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.953, Last Summer: $6.79
Last winter: $7.16
Crude oil: $96.32, #2 oil $2.618

We finished the injection season with an all-time record high of 3.545 Tcf. Coincidentally, the EIA added to the good news last week by reporting that U.S. natural gas proved reserves increased 3% in 2006 to the highest level since 1976, the eighth year in a row that reserves have increased, while crude reserves declined 4 %.

The seasonal tendency for natural gas is for the December contract to rally in mid-November and then to fall about 15% from the top of that rally into a Thanksgiving holiday decline. Since this year is paralleling ’06 so closely, I am looking for the same price action and advise you to maintain your triggers to buy additional December gas in the $7.25-$7.50 range or to wait on contract expiration. The January gas contract always rallies in mid-December but I’d avoid buying any of it until expiration. Jan. ’07 expired at $5.838, almost $3 lower than the current price for Jan ‘08.

With crude oil setting new all-time highs each week, alternative fuels get plenty of press. Recognizing the futility of corn based ethanol, Shell is helping to grubstake Range Fuels in a project to make ethanol from pine tree pulp, with optimism that commercial production could come in as little as 5 years. Meanwhile, BP is hoping butanol, the longer carbon chain alcohol, can be commercially produced sooner than cellulose ethanol. Butanol can overcome some of the drawbacks of ethanol such as limited mileage, water attraction and limited blending in standard vehicles. The dilemma facing ethanol is called the E-10 wall. The properties of butanol allow you to blend it with gasoline up to 18% and to transport it through pipelines. It has 88% of the mileage of gasoline, compared to less than 70% for ethanol. Butanol is still in the early development phase.

A charge on carbon generation will most likely be part of our energy future. The calculus of credits is based on the cost per ton of CO2. At $20 to $30 a ton, the 1.9 lbs of CO2 emitted to produce a kilowatt-hour of electricity from a coal plant costs 2 to 3 cents. Wind power would be comparably price with coal at a $25/ton carbon charge. Nuclear power makes sense at a negligible carbon cost. The source of biofuels will even be considered. Ethanol carries a different carbon footprint if made from corn instead of cellulose. If you’d like to get a feel for how to calculate carbon costs, visit www.Terrapass.com or www.Carbonfund.org

Please feel free to call me to discuss any questions you may have about your specific energy plan.

11-5-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (11/2) energy settlements:
December NYMEX gas closed: $8.418
Winter ’07-’08: $8.67
The NYMEX one-year strip $8.48, 2-year strip $8.58, 3-year $8.54
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.953, Last Summer: $6.79
Last winter: $7.16
Crude oil: $95.93, #2 oil $2.573

For the 17th consecutive year, gas has rallied in the 4th quarter and for the 17th time it comes as a surprise to many of us. Why should gas rally when storage is at an all-time record high of 3.509 Tcf with another injection to report this week, while forecasters are calling for a warmer than normal winter. Remember last year when storage was at an all-time high with a prediction for a warm winter when gas soared to $9.05 from its Q3 low of an Amaranth aided $4.07, a 122% increase before expiring at $8.31? Last week’s high of $8.66 would only be a 66% increase over our Q3 low of $5.23. Throughout the life of the NYMEX, the average rally in the 4th quarter is 109% over the 3rd quarter low. I don’t believe we’ll make the average this year, but more room to the upside should be expected during the traditional run up in November and December. Last week’s close was only the 16th time in the past 90 weeks that gas has settled above $8.

Keep your triggers in place to buy December gas in the $7.25 to $7.50 range or wait until expiration. Last year, January gas expired with a “5” in front of it and I’d discourage anyone from buying it now.

As crude oil rallied above $96/Bbl last week, everyone seemed to have their own Armageddon story. In the past two weeks, the CEO’s of BP, Exxon and Total have explained the great difficulties their industry will face in attempting to reach the 100 million barrel per day production target that many predict the world will consume within the next decade. In fact, Total’s boss flatly said it can’t be attained, noting that we’ve got the reserves but it’s the deliverability that’s the sticking point.

One culprit is national oil companies. They don’t develop reserves with the efficiency of the for-profit industry. Venezuela is a classic example, needing approximately 191 drilling rigs to maintain existing production while only 73 are currently in operation.

Meanwhile, China and India continue to subsidize diesel and gasoline costs. India’s subsidies will cost its government $12.8 B this year. China raised diesel and gasoline prices by 10% to consumers last week but still sells it for less than half the market rate, and diesel is being rationed as domestic refining can’t meet demand. Artificially cheap fuel encourages waste and pollution while creating unfair subsidies for manufactured goods, to say nothing about the illusory financial statements it creates for Chinese and Indian companies whose stocks are soaring on their markets. Both nations say they’d like to eliminate the subsidies some day, but it’s hard to get off that roller coaster at this speed.

In the middle east; I know it’s not about the oil but the Iraqi government pleased Washington last week by cancelling a contract that Russia’s Lukoil held to develop the giant Qurna oil field in southern Iraq, opening the door for US firms to participate. Putin has countered by threatening to rescind a $13 B debt forgiveness deal arranged for Iraq in 2004. For comparison purposes, the US spends that much every two months in Iraq.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

10-29-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (10/26) energy settlements:
November NYMEX gas closed: $7.218
Winter ’07-’08: $7.87
The NYMEX one-year strip $7.90, 2-year strip $8.19, 3-year $8.25
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.943, Last Summer: $6.79
Last winter: $7.16
Crude oil: $91.86, #2 oil $2.43

The bearish divergence in the daily MACD and RSI I mentioned last week proved to be good indicators as gas traded lower early in the week, but the move in crude to another new all-time high carried natural gas in sympathy. The November contract expiration on Monday (10/29) could be a carbon copy of last year’s $7.15, and given the similar fundamentals, I can understand why.

Last year, December gas expired at $8.31. That’s the only expiration above the $5.50-$8.00 trading range since the ’05 hurricanes. While I expect continued volatility and December gas could trade above $8 intra-month while still remaining in its present trading channel, I’d be very surprised if we repeat the ’06 expiration price this year.

Working gas in storage, at 3.443 Tcf as of 10/19 is only 18 Bcf short of last year’s all-time record, and with 2 weeks left in the “traditional” injection season, 3.5 Tcf seems a given while long range weather forecasts would indicate additional injections throughout November. This sets up well for lower prices in Q1 gas and I suggest that you limit the urge to buy more gas beyond December or January.

During the 3rd quarter of 2007, US well completions soared to the highest quarterly level in more than two decades. An estimated 13,543 gas and oil wells were drilled, the most since Q3 of 1985. 7,628 gas wells were completed, the highest 3rd quarter on record.

If I were a hedge fund manager with profits in crude oil, the Euro and gold with the year’s end and my bonus within sight, I’d at least be thinking about selling my crude position. Crude and products are well supplied. I know the Turkey-Kurd-Iraq issue is unsettling but that was a big worry when we attacked in 2003. The weak dollar is a protracted problem but that gives traders a backstop for another run up in oil in 2008 since that was the reason given for this rally until the Kurd attacks.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

10-22-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (10/19) energy settlements:
November NYMEX gas closed: $7.041
Winter ’07-’08: $7.79
The NYMEX one-year strip $7.80, 2-year strip $8.07, 3-year $8.13
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.943, Last Summer: $6.33
Last winter: $7.16
Crude oil: $88.60, #2 oil $2.33

Last week, natural gas ignored the ongoing speculative exuberance in crude oil which reached $90 a barrel. Gas settled just slightly higher than the previous week and only a dime above its average monthly settlement price of the last 12 months. From a technical perspective, gas looks like it will trade lower, as its daily continuation chart has a bearish divergence in its Relative Strength Index (RSI) as well as the Moving Average Convergence Divergence (MACD)(Both moved lower as gas moved higher). These have historically been accurate indicators of lower price action. We may well see $100 oil while gas has a “6” in front of it before the end of October.

There is also bearish fundamental data. The extremely warm weather while nuclear power plants have been down for planned maintenance has caused gas fired power generators to consume about 3 Bcfd. Now, moderating temps will relieve that condition, sending more gas to storage. Consequently, we expect the November ‘07 contract expiration to be in line with or lower than last November’s price of $7.15. If you choose to buy forward, buy on support in the $6.50 to $6.75 range or buy monthly settlements.

Weather Frontier issued its winter ’07-’08 Outlook last week and predicts a “La Nina” dominated, warmer than normal winter with only the month of February being colder than normal and even that is limited to the Great Lakes region. The Farmer’s Almanac calls for warmer than normal too with early December being the only time we see below average temps.

Looking ahead, Qatar expects to more than double its exports of LNG to 77 million tons per year by 2011, equaling roughly 20% of the global supply and yet its super giant North Field should have 97 years of reserves left at that production rate. But, the message to the world is that Qatar has no intentions to expand its LNG sales beyond its 2011 output. If the growth does not come from Qatar, where else will it come from? Russia, Iran, west Africa and Australia are likely candidates but, each has its own set of challenges that would add to the cost of LNG.

Conservation is vital in a world that consumes more energy as it grows. Last week, the California Public Utilities Commission approved a framework to guide the long-term energy efficiency programs for its gas and electric utilities. The plan will require that all new homes produce energy equal to or greater than what they consume by 2020. Commercial structures have until 2030.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

WEEKLY ENERGY MARKET UPDATE:



Friday (10/19) energy settlements:
November NYMEX gas closed: $7.041
Winter ’07-’08: $7.79
The NYMEX one-year strip $7.80, 2-year strip $8.07, 3-year $8.13
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.943, Last Summer: $6.33
Last winter: $7.16
Crude oil: $88.60, #2 oil $2.33

Last week, natural gas ignored the ongoing speculative exuberance in crude oil which reached $90 a barrel. Gas settled just slightly higher than the previous week and only a dime above its average monthly settlement price of the last 12 months. From a technical perspective, gas looks like it will trade lower, as its daily continuation chart has a bearish divergence in its Relative Strength Index (RSI) as well as the Moving Average Convergence Divergence (MACD)(Both moved lower as gas moved higher). These have historically been accurate indicators of lower price action. We may well see $100 oil while gas has a “6” in front of it before the end of October.

There is also bearish fundamental data. The extremely warm weather while nuclear power plants have been down for planned maintenance has caused gas fired power generators to consume about 3 Bcfd. Now, moderating temps will relieve that condition, sending more gas to storage. Consequently, we expect the November ‘07 contract expiration to be in line with or lower than last November’s price of $7.15. If you choose to buy forward, buy on support in the $6.50 to $6.75 range or buy monthly settlements.

Weather Frontier issued its winter ’07-’08 Outlook last week and predicts a “La Nina” dominated, warmer than normal winter with only the month of February being colder than normal and even that is limited to the Great Lakes region. The Farmer’s Almanac calls for warmer than normal too with early December being the only time we see below average temps.

Looking ahead, Qatar expects to more than double its exports of LNG to 77 million tons per year by 2011, equaling roughly 20% of the global supply and yet its super giant North Field should have 97 years of reserves left at that production rate. But, the message to the world is that Qatar has no intentions to expand its LNG sales beyond its 2011 output. If the growth does not come from Qatar, where else will it come from? Russia, Iran, west Africa and Australia are likely candidates but, each has its own set of challenges that would add to the cost of LNG.

Conservation is vital in a world that consumes more energy as it grows. Last week, the California Public Utilities Commission approved a framework to guide the long-term energy efficiency programs for its gas and electric utilities. The plan will require that all new homes produce energy equal to or greater than what they consume by 2020. Commercial structures have until 2030.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

10-8-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (10/5) energy settlements:
November NYMEX gas closed: $7.073
Winter ’07-’08: $7.89
The NYMEX one-year strip $7.86, 2-year strip $8.08, 3-year $8.10
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.943, Last Summer: $6.33
Last winter: $7.16
Crude oil: $81.22, #2 oil $2.223

Continued warm temps 15 degrees above the norm in the eastern US combined with scheduled maintenance for 16 nuclear power plants increased natural gas usage for power generation and reduced gas storage injections. To give that perspective, 4.1 Bcf of gas was required to replace 16,336 Mw of nuclear power on Friday out of a total of 25.5 Bcf used for power generation. Total US production on Friday was estimated at 51.7 Bcf while total US gas receipts including imports was 61 Bcf. Injections for the week ending 9/28 were 57 Bcf, with a comfortable total of 3.263 Tcf in storage.

Gas production in the Rockies is down, but producers shouldn’t be castigated for taking gas off the market to support prices. The reality of gas production is that mechanical problems occur to wells regularly. When gas prices are high, producers rush to get them back on line. When prices are less than desired, producers wait until there are enough wells down to spread out the large set up costs for a rework rig. With Colorado prices south of $3 most days, there is no rush to “overpay” to get sickly wells back on line.

LNG deliveries are also down as Asian purchasers take advantage of a cheap dollar to outbid US sites for cargos. Since we can’t meet demand without LNG, the devalued greenback may be a harbinger of higher Q4 gas prices as cold weather finally arrives.

The gap in the daily continuation chart between $6.74 and $6.47 is a good place to be a buyer of Nov gas. Otherwise, nat gas remains range bound between $5.50 and $8.00, so think twice before you lock in prices near the top of that range. It has proven to be costly insurance over the past 85 weeks.

On an upbeat note, production from the Independence Hub in 8,000 feet of water in the Gulf has reached 0.44 Bcf/d, and it is expected to reach 1 Bcf/d by year’s end.

South Korea’s Daewoo Shipbuilding and Marine Engineering Co. Ltd. have started construction of Transocean's Discoverer Americas drillship, the second of Transocean's four enhanced Enterprise-class drillships. Contracted to Hydro of Norway for operations in the US Gulf of Mexico, the ultra deepwater drillship is designed to operate in water depths to 12,000 ft and to drill wells to a depth of 40,000 ft. Meanwhile, GlobalSantaFe Corp. has $740 million in orders for ultra deepwater drillships for delivery in late 2010. They will be able to drill in 12,000 ft of water.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

10-1-07 Energy Update

WEEKLY ENERGY MARKET UPDATE

Friday (9/28) energy settlements:
November NYMEX gas closed: $6.87
Winter ’07-’08: $7.76
The NYMEX one-year strip $7.75, 2-year strip $8.00, 3-year $8.05
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.943, Last Summer: $6.33
Last winter: $7.16
September Crude oil: $81.66, #2 oil $2.225

October gas expired at $6.423, almost a dollar higher than Sept. The increase appeared more driven by financial traders than supply-demand fundamentals as “short Oct./long Nov” spreads had traders scurrying to purchase October contracts on expiration.

Last week’s storage report put us at 3.206 Tcf. During the 6 weeks remaining in the traditional injection season we only need to average 65 Bcf per week to reach the previously unthinkable total of 3.6 Tcf in the ground ahead of winter. Long range forecasts project a mild November nationwide which will lengthen the injection season. Everything about the fundamentals would make one think that gas should be $5.00. And, when I put on my technical analyst’s hat, the November chart doesn’t look bullish. But, at this time of year, the market acts counter intuitively. When storage gets full, gas prices go up. Natural gas rallies every October. November gas has expired higher than October every year in this decade. In 10 of the past 16 years, the Q4 high has been in October or November, so you can’t bet against tradition.

Throughout the history of the NYMEX, the average increase from the lowest intraday Q3 price to the highest intraday Q4 price has been 111%. With high storage levels and greater domestic production than a year ago, most pundits logically predict less volatility this winter. The private weather forecaster, WSI Corporation predicts the next two months will be warmer than normal across most of the US, but December will bring below-normal temperatures to the heavily populated Northeast and North Central regions (based on La Nina trends). Maybe that will be the catalyst for the rally, but I agree with the majority this time because colder temps confined regionally won’t be enough to offset ample gas supplies, especially if the nuclear power fleet remains at nearly full capacity.

November gas should decline to at least the October expiration price so set trigger to buy additional supplies when Nov. trades from $6.43 to $6.25. Keep some powder dry to purchase longer term strips during the Q1 low.

In the news: The Chinese have a deal with Cuba to explore oil reserves almost within sight of Key West, Florida, while Venezuela, which controls the largest oil reserves in the Western Hemisphere is making deals with China to sell them oil that is currently coming to the US. The Chinese plan to slant drill off the Cuban coast near the Florida Straits, which would tap into U.S. oil reserves that are estimated at 4 to 9 billion barrels. Of course, we won’t drill them because of Florida’s anti-drilling lobby. For comparison, 4 to 10 billion barrels are believed to be beneath the Alaska National Wildlife Refuge, where the future of drilling is also held up in Congress.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

9-24-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (9/21) energy settlements:
October NYMEX gas closed: $6.08
Winter ’07-’08: $7.85
The NYMEX one-year strip $7.64, 2-year strip $7.97, 3-year $8.05
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.758, Last Summer: $6.33
Last winter: $7.16
September Crude oil: $81.62, #2 oil $2.256

Gas prices drifted lower last week in time for the October contract expiration this Wednesday. About 3.4 Bcf/d was shut-in in the Gulf of Mexico in preparation for the almost-storm Jerry, but LNG jumped up slightly to 1.9 Bcf/d, and Canadian imports increased by 0.8 Bcf/d to help offset some of the Gulf reductions. Storage injections for last week are expected to be 57 to 60 Bcf which keeps us on track for a new all-time record that will approach 3.6 Tcf.

Be prepared to add to gas needs through January over the next two weeks. Conservative buyers should purchase the term at the expiration of the October contract, but history shows that November prices will decline in the first half of October before the winter rally begins. The 4th quarters always produce a run up in gas prices and although November gas has expired lower than October 4 times in the past 16 years, it has never expired lower since 2000. The Q4 high historically doubles the Q3 low, which is $5.23.

Then keep plenty of powder dry to buy ahead during the Q1 ‘08 low. Early predictions are for a mild, La Nina winter which will depress gas prices in Q1 if it proves true.

Gas supplies look abundant currently and through 2009, but there is a disturbing trend of drilling rigs leaving the Gulf of Mexico because rig owners can get longer contracts for more money in places like the west coast of Africa, Brazil and the Middle East. The number of rigs in the GOM has declined by 19 since this time last year; down to a total of 72. At this time in 1997, the count was 122, according to Baker Hughes. GOM production decline rates are among the most severe in this hemisphere so any slowdown in drilling will cause a steep decline in production in the coming years. We’ll have to fill that gap with LNG and my research shows LNG supplies from the world’s largest gas fields topping out in 2015.

Crude oil continued to smash records as everyone from retired former Exxon CEO Larry Raymond to the research team at Goldman Sachs talked about an impending oil shortage. Raymond cited the industry’s multi-trillion dollar investment needs along with a shortage of technically savvy oil engineers. Goldman spoke to water and labor bottlenecks preventing significant increases in the production of Canadian tar sands, the nationalization of some oil and gas assets which leads to reduced output and no further foreign input of capital, Biofuels’ inflationary effect on both oil and food prices, and technical problems at Gas-to-Liquids plants that could take GTL off the table with less than $70 oil. Both expressed the need to moderate demand. I guess the way I’d put this is that there is no shortage of oil, there is just a shortage of oil at low prices. Since the 1960s, two barrels of oil have been consumed for every barrel found, while alternative energy is going nowhere. For example, wind and solar power will only supply about 1% of global energy demand by 2030. That means that fossil fuels will remain the dominant energy source in this century. But, don’t run for the exits just yet. Scarcity has a history of being followed by gluts in the oil industry. The secular bull market in energy means that the future lows will be higher lows, but there will still be periodic downtrends in the price of oil and products, and don’t be surprised if a weak dollar isn’t exacerbating this run up more than impending gasoline lines.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

9-17-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (9/14) energy settlements:
October NYMEX gas closed: $6.279
Winter ’07-’08: $7.81
The NYMEX one-year strip $7.62, 2-year strip $7.95, 3-year $8.00
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.758, Last Summer: $6.33
Last winter: $7.16
September Crude oil: $79.10, #2 oil $2.2078

Trading patterns suggest that a large trader is short October gas. The CFTC claims that ICE (Intercontinental Exchange, which trades OTC and is not subject to CFTC oversight) is providing confidential position reports to the commission and that no trader appears to be in a position that would adversely affect the orderly operation of the gas market. I hope so, but there are other OTC market makers who don’t report and we may not have the clear picture yet. Regardless, October gas was up $0.75 from the previous week while weather as of 9/14 was not a factor and storage matches last year’s record level for this week at 3.069 Tcf in the ground.

Gas has traded higher mid-month and then declined into expiration each month since July. I expect to see price weakness in the October expiration just as there has been expiration weakness in 17 of the last 21 months, (April and May being the only exceptions this year). If that occurs, don’t hesitate to buy future gas positions, because natural gas always rallies in the 4th quarter and it usually turns bullish in early October.

Crude oil traded up to $80.35 last week. Behind the hype of this bull market lurks a fact few wish to confront. The dollar’s weakness makes the increase in crude a bigger problem for the US than the EU. Crude trades in dollars, so $80 crude is just over 57 bucks to the French or Italians and about $40 to the British. The US spends over $8.5 billion per month in Iraq and has chosen to borrow the funds rather than pay for it by reducing other expenses or increasing taxes. The lingering effect is more pressure on the dollar internationally and a greater energy “tax” domestically. Interestingly, the OPEC “price hawks” like Chavez also face a conundrum. Like a vengeful spouse in a bad divorce they want to harm the US economy with high oil prices, but they can’t live without our alimony payments for their crude. As it shakes out, a recession will hurt all sides but the little guys will pay the biggest price. In the interim, we all need to conserve energy. Driving less and watching the thermostat will help us financially and environmentally.

The most economical way to develop Alaskan gas reserves has long seemed to be liquefying them into LNG or converting them to ultra-clean diesel in a gas to liquids operation, rather than building a mammoth pipeline, yet the pipeline continues to have life. Last week, Bill Allen, the former chairman of VECO Corp, testified that he paid a lawmaker to help keep him in office and advocate for the construction of the pipe. The money was paid to former House Speaker Pete Kott in an inflated invoice for a flooring job to Kott’s business. That’s one down. How many more to go?

Please feel free to call me to discuss any questions you may have about your specific energy plan.

9-10-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (9/7) energy settlements:
October NYMEX gas closed: $5.501
Winter ’07-’08: $7.353
The NYMEX one-year strip $7.22, 2-year strip $7.67, 3-year $7.81
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.758, Last Summer: $6.33
Last winter: $7.16
September Crude oil: $76.70, #2 oil $2.143

This week I know what it’s like to be a weatherman in San Diego. All he gets to say is, “Tomorrow will be clear and 72 degrees, just like yesterday and today.” Then he talks about everybody else’s weather. There is nothing new to say about natural gas this week that wasn’t said last week. October gas, the winter strip and one, two and three year strips all closed the week within a few cents of last week and at or near lows for the year. If you have no future hedges in place, you need to buy some gas now. If you can afford to be a little greedy, wait a little longer as I think it will trade lower by Labor Day.

Total working gas in storage reached 3.0 Tcf earlier than ever before and with 9 weeks left in the traditional injection season; a new all-time record seems inevitable. More good news for gas consumers lies in 2007 Canadian production statistics. In the 4th Q of ’06, I reported that Canadian gas exports to the US would likely decline in ‘07 as Canadian drilling rates had declined at the same time gas demand for the Athabasca tar sands was increasing. But, Canadian gas production volumes have been larger than expected during the first half of ’07 due to the unexpected resilience of the Western Canada Sedimentary Basin. Bottom line; Canadian production has declined overall only 1% from ’06 levels, and exports to the US in the first 6 months of ‘07 are basically the same as ‘06 even though drilling footage is off by 28% vs. the ’06 pace. But, with no evidence that drilling will pick up in the near future our luck won’t hold out in ’08. Ample Canadian supplies and additional LNG production coupled with no significant lost production days to Gulf storms has helped create a mini gas glut, and this buying opportunity.

Even as Canadian production experiences natural declines, the US supply picture should remain rosy through 2008 as LNG supplies increase worldwide by 25% next year. US imports are expected to increase about 40% as a result. Worldwide liquefaction capacity should increase to about 27 Bcf/d by the end of ‘07 and to 34 Bcf/d by end of ’08. Global gas demand growth is estimated at about 3% annually, so the 7 Bcf/d increase in supply will go to the US market when it cannot be used elsewhere because we have the best developed storage system in the world to absorb the overhang in supply that occurs seasonally.

While natural gas prices fall, crude oil is about to re-test all-time highs, as crude continues on the bullish trend that began in January. As I look for a fundamental explanation, one idea keeps reoccurring to me. In addition to increased Chinese and Indian demand, the top ten exporting nations are also using more oil at home for their rising populations and growing number of automobiles. Chronically high crude prices may be the results of the marketplace discounting this trend of reduced exportation capability.

Looking ahead, over the next few months the Nuclear Regulatory Commission (NRC) expects to receive 12 applications to build new nuclear-power reactors. Applications for another 15 are expected next year. These will be the first new nuclear plants in America in 30 years. The next generation of nuclear plants will be simpler and safer than existing plants. That should make it easier to obtain operating permits, and help to get them built faster and run cheaper. While we slowly move back on the nuclear energy track, India’s nuclear energy ambitions have hit a major roadblock due to a shortage of indigenous uranium, threatening new capacity additions. According to India’s government statistics, uranium reserves in the country can sustain 10,000 Mw of capacity. The current capacity of the country is a little over 4,000 Mw. This will force India to further seek LNG and oil to meet power needs. It’s no wonder that we’re in a secular bull market for energy for at least a generation.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

9-3-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (8/31) energy settlements:
October NYMEX gas closed: $5.468
Winter ’07-’08: $7.397
The NYMEX one-year strip $7.25, 2-year strip $7.69, 3-year $7.81
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.758, Last Summer: $6.33
Last winter: $7.16
September Crude oil: $74.04, #2 oil $2.042

Last week was the lowest weekly close since the Amaranth meltdown last September, and last Wednesday’s expiration of the September contract was the lowest monthly expiration since the Amaranth induced fall in the Oct ’06 contract. Prior to that, you have to go back to Sept ’04 to find a lower monthly settlement. The one year strip out of October at $7.25 seems like a relatively cheap way to take the “probably” out of your energy budget. Given that the mid-point of the long standing trading range between $5.50 and $8.00 is $6.75 and the average spot price of the past 12-months is also $6.75, the “insurance premium” in the one-year strip is only $0.50/Dt. Consider buying a slice of the one year strip as insurance.

If your horizons are shorter, the Nov-March winter strip that was $9.80 back in June has tumbled to $7.40, only a $0.24 premium to the ’05-’06 average settlement prices. The Nov-Dec portion at $6.92 is extremely attractive, while the Nov-Jan at $7.22 is your most prudent risk-reward purchase. The Dec-March strip at $7.67 and the Jan-March at $7.77 are less attractive.

The EIA reported storage at 2.969 Tcf last week. With cooler temps ahead, a new record by Nov. 1st at 3.5 Tcf would only require a average weekly injection of 53 Bcf per week; 63 Bcf would take us to 3.6 Tcf and that’s not out of the question.

While gas prices can move lower given the current fundamentals, please remember that pigs get fat and hogs get eaten. This is only the 13th time in the past 81 weeks that natural gas has settled below $5.50. Buy a percentage of your future needs “average down” when these attractive prices are available.

Watching the European energy markets reminds me of Will Rogers’ saying that “Diplomacy is saying nice doggie while looking for a rock.” Europe must import energy. Russia has lots of gas, oil and uranium. Russia’s KGB trained leadership has already shown the willingness to use energy as a bargaining chip to forward its political goals. The European Union is trying to establish new rules for the ownership of power generation and gas and power distribution systems that would thwart Russian efforts to own European energy “downstream” assets. Russia has cried foul and stated it will do everything “legally in its power” to stop the EU’s efforts. Energy is the oxygen supply of the industrialized world and Russia’s energy assets will influence political policy from Europe to Asia for the next generation.

It’s not what you don’t know, as much as what you think you know that’s wrong that can hurt you. A team of Carnegie Mellon University researchers will report in the upcoming journal Environmental Science and Technology that liquefied natural gas (LNG) used for electricity generation could have 35% higher lifecycle greenhouse gas emissions than coal used in advanced power plant technologies.

North America will probably experience a natural gas shortage before any other region of the world. North America has only 4.6% of the world's gas reserves but consumes 30.3% of the world's production, with the US consuming the lion’s share. The proved and probable reserves to production ratio is only 9 years. It is easy to see that present consumption rates cannot be maintained for long without importing large amounts of LNG.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

8-27-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (8/24) energy settlements:
September NYMEX gas closed: $5.523
Summer: September-October ’07: $5.631, Winter ’07-’08: $7.663
The NYMEX one-year strip $7.25, 2-year strip $7.69, 3-year $7.79
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.874, Last Summer: $6.33
Last winter: $7.16
September Crude oil: $71.09, #2 oil $1.997

Working gas in storage was reported to be 2.926 Tcf as of 8/17. At 904 Bcf, producing region storage levels are about 20 Bcf less than where they ended the injection season last year. Total storage levels are 77 Bcf higher than at the same time last year and 333 Bcf higher than the five-year average. With 10 weeks left to report, if injections match the pace set last year for the same period, working gas will rise to more than 3.5 Tcf, and if injections match the 5-year average, storage will reach nearly 3.6 Tcf. Combine storage prospects with an absolutely clear Atlantic and Caribbean storm map, and you’ve got the formula for even lower gas prices.

Over the last 80 weeks natural gas prices have settled above $8 only 15 times and below $5.50 only 12 times. The daily RSI shows an extremely oversold reading of 23, so a brief rally should be in order, but look for prices to move lower as we approach Labor Day.

The only bullish news for gas right now is the high temperatures across the Southeast that have been averaging about 10 degrees above normal with triple digit highs. Demand for gas fired power generation remains very high at 32.4 Bcf/d, but in 30 days we’ll have 1 ½ less hours of sunlight per day to resolve the problem.

Being proactive this time, the CFTC has questioned ICE about traders’ positions in Oct and Nov gas as that spread moved above $1.00 last week. In North Carolina, CUCA (Carolina Utilities Customers Assoc.) succeeded in getting taxes on electricity, natural gas, fuel oil, and propane used by manufacturers to be phased out over the next four years. This victory represents $10 million in savings in 2007-2008 and $20 million for 2008-2009.

Around the globe, Russia has cut crude oil shipments to German refineries by 1/3 of contracted volumes during July and August. No reason has been given but speculation is that Russia wants to force Germany to sell the refineries to them. Remember Marathon’s “Starvin Marvin” truck stops? I don’t think we’re going to like Putin’s “Thrivin Ivan” version of a consolidated oil company.

In a scheme reminiscent of how the Russian government pushed Shell out of Sakhalin, Kazakhstan is threatening to revoke Italian oil company, Eni‘s development license for the Caspian Sea project over “environmental” concerns. The Kashagan field is one of the largest finds in over 30 years and is expected to produce over 1.5 million barrels of oil per day by 2019.

Finally, Duke Energy’s CEO, Jim Rogers has an idea for America that is so novel that Thomas Friedman wrote about it in his NY Times column last week. It is conservation. I grew up with depression era grandparents. They stressed, “Don’t stand there with the refrigerator door open” and “turn off the lights when you leave the room.” This time around we should add “Your waste supports terrorism” and “The Russians are coming.” I hope Mr. Rogers’ ideas catch on.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

8-20-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (8/17) energy settlements:
September NYMEX gas closed: $7.01
Summer: September-October ’07: $7.07, Winter ’07-’08: $8.52
The NYMEX one-year strip $8.06, 2-year strip $8.31, 3-year $8.32
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.874, Last Summer: $6.33
Last winter: $7.16
September Crude oil: $71.98, #2 oil $2.017

Although hurricane concerns raised September gas prices last week, I prefer to look toward the silver lining. The winter, one, two, and three year strips were all down slightly last week, with some strips being lower than they were two weeks ago when the prompt month was barely over $6.00. More than from fear of Hurricane Dean, this rally stems from short covering by non-commercial traders, evidenced by rising prices on lower volume and lower open interests.

As of August 10th, we have 2.903 Tcf in storage and need injections of only 37 Bcf per week to match last year’s record, but the recent record heat has slowed the injection pace to the 20’s per week. We will make up ground during the cooler days of September and I still expect a Labor Day-ish low in natural gas. For now, it’s time to buckle up and stay on storm watch.

The most bearish scenario would be Cat 3 or lower storms that do little or no damage to energy infrastructure and bring heavy rains far inland which would cool temps and relieve widespread droughts. So, that’s my prayer. Otherwise you should be partially hedged through hurricane season. Even if we have damaging storms, the recovery time will be much quicker than 2005. Any price spike will be lower and of shorter duration this time.

Looking ahead, giant oil fields, defined as those containing at least 500 million barrels of recoverable oil, represent only 507 fields, or 1 % of the total number of oil fields yet discovered, but they produced over 60 % of total 2005 production and account for 65 % of the ultimate recoverable reserve on earth. However, the majority of these giants are over 50 years old. Many of the largest giant fields are in the countries surrounding the Persian Gulf. Every “peak oil” scenario shows the peak occurring at about the same time as the giant fields’ peak. The worst-case scenario shows a peak in world oil production in 2008 and the best-case scenario, using a 1.4 % annual demand growth, peaks in 2018.

It’s been said that South America will be the richest continent in the next century……..and it always will be. The latest guarantor of that forecast is the rush to nationalize the oil industries of the continent, lead by Hugo “born on3rd base and thought I hit a triple” Chavez. Chavez inherited a top notch oil business that was profitable at $25/Bbl and then prices soared to the $70’s. Flush with the windfall of unearned cash, he is tossing it around to his South American friends and promising them great fortunes if they too nationalize their fledgling oil industries. The problem is that his buddies lack the money or expertise to develop the reserves themselves. While they’ll be part of the cause of the next oil boom to $100/Bbl by keeping their production off the market, they’ll be the poor kids watching the parade from the cheap seats. Meanwhile, Venezuela’s production will deteriorate over time just like every other national oil company that thought it was so easy to do it on their own.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

8-6-07 Energy Update

WEEKLY ENERGY MARKET UPDATE

Friday (8/3) energy settlements:
September NYMEX gas closed: $6.09
Summer: September-October ’07: $6.19, Winter ’07-’08: $8.09
The NYMEX one-year strip $7.69, 2-year strip $8.15, 3-year $8.27
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.874, Last Summer: $6.33
Last winter: $7.16
September Crude oil: $75.48, #2 oil $2.034

Working gas in storage was 2.843 Tcf as of July 27th, 68 Bcf ahead of the same week a year ago, and on track to establish a new all-time record during the remaining 13 weeks of the traditional storage injection season. To date, no production days have been lost to storms and LNG shipments have set an all-time record high.

The vast majority of hurricanes occur during August and Sept, with Sept holding a slight lead. After gas prices decline in July, they rally during mid to late August before declining again during September. The average volatility of such rallies and declines isn’t as significance as the dependability of the repetition. Even during 2005, gas prices declined in September.

During the recent decline in prices, most of you hedged some gas through this hurricane season, but the premium on Q1 gas has us postponing any hedging of the Jan-March time frame. At a strip price of $8.40, those months are above the current trading range and carry quite a premium to the actual average NYMEX settlements of $6.77 for the expirations of Jan-Mar of ‘07. Hope may lie in the price action of those contracts last week, as they settled below previous resistance. Unless you are totally budget driven, wait to buy more Q1 gas. Very soon, storage will be so full that injections will be restricted and the glut of gas in the spot market should take prompt month prices back to or below the July low. That could take $0.30 to $0.50 of premium out of Q1 prices.

Crude oil made a lifetime high last week at $78.70 as nat gas moved lower in what looks like a “buy crude-sell gas” strategy by the funds. At some point, profit taking will reverse the flow, and that may be hastened by an August tropical storm. Energy markets will be weather driven for the next 60 days.

From time to time, supply will become glutted and prices in the near term will be attractive, but a long term secular bull market in oil, oil products and natural gas seems unavoidable. Although BP reports that world oil demand in 2006 grew at the lowest pace since 2001, at 0.7% (half of the average for the past decade), oil production grew by only 0.4%. Alternative energy and conservation will be a necessity, and even the best efforts won’t quell growing world demand. Chinese oil demand is often cited as a culprit, but China is making efforts for diversity in its energy supply. Of the 74 nuclear reactors under construction worldwide and another 182 planned, China has 23 plants under construction and 54 planned. In the Chinese city of Xi’an there are 20,000 taxis, 3,000 buses and 2,000 special purpose vehicles fueled by CNG (compressed natural gas), with 23 CNG filling stations.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

7-23-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (7/20) energy settlements:
August NYMEX gas: $6.446
Summer: August-October ’07: $6.55, Winter ’07-’08: $8.49
The NYMEX one-year strip $7.85, 2-year strip $8.24, 3-year $8.30
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.951, Last Summer: $6.33
Last winter: $7.16
August Crude oil: $75.79, #2 oil $2.09

Gas storage, at 2.692 Tcf is about one full month ahead of the 5-year average for this time of year, and working gas in storage is likely to end July at the highest level ever. Last July’s heat required a peak day burn of 34.5 Bcf to generate power. This July’s max day has been 29.5 and although the CDD days have varied greatly by region, overall gas consumption for power generation has been lower in ’07 than ’ 06, so storage injections have been 76% higher than last July. July LNG imports set a new all-time record at 3.3 Bcf/d, but shipments should decline in August as European prices become more attractive. A long term marker to watch; Canadian imports are off 7% this year.

As bearish as the fundamentals seem, the technical indicators point to a rebound in prices. Non-Commercials are extremely oversold and the Commercials hold their largest net long position since last November’s rally. Last week’s pit trading opened and closed at $6.44, a weekly doji, which has nearly always indicated a change in price direction. A fun fact; last year’s Q3 low was $6.44, and it was in the August contract, occurring on July 6th.

Crude oil prices continue to rise like there is nothing to stop them from retesting the old NYMEX high of $77.95, but unleaded gasoline and heating oil both traded lower last week. My guess is that traders are long crude and short nat gas. If I’m correct, the inevitable crude sell-off will be the trigger to the nat gas rally.

You should own up to 50% of your future gas needs through January by now. Will price go lower this week, or will prices rally now, and then trade lower near Labor Day if there are no Gulf storms? Probably not to the former question, and probably yes to the latter if there are no storms, but I’d buy insurance right now anyway.

The big story in natural gas is last week’s opening of the Independence Hub. This engineering marvel is located in 8,000 feet of water 123 miles SE of Biloxi, Miss. It is the deepest production platform ever installed and also is the world's largest offshore natural gas processing facility. The Hub will deliver 1 Bcf/d by late 2007.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

7-16-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (7/13) energy settlements:
August NYMEX gas: $6.662
Summer: August-October ’07: $6.79, Winter ’07-’08: $8.47
The NYMEX one-year strip $7.86, 2-year strip $8.16, 3-year $8.21
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.951, Last Summer: $6.33
Last winter: $7.16
August Crude oil: $73.93, #2 oil $2.111

Gas traded to a new Q3 low of $6.33 last week as non-commercial traders increased their net short positions to extreme levels, before short covering rallied gas on Friday. Commercials increased their net long positions; always a sign that prices will begin to rally. But any rally will be contained by a healthy set of fundamental conditions. As of the week ending 7/6, the EIA reported 2.625 Tcf of gas already in storage. Even though last week’s reported 106 Bcf injection included a 10 Bcf reclassification of base gas to working storage, we still need less then a 39 Bcf per week average injection to reach last year’s all-time record level. Projected injections for the new two week are 68 Bcf (reflecting power generation usage during the hot weather) and 89 Bcf for the week ending 7/19. This is an opportunity to buy some future gas for needs through January.

Better gas market transparency appears to be in our future. The Senate’s Permanent Subcommittee on Investigations was told by ICE CEO Jeffrey Sprecher, that he would have “no objections” to being brought under the same regulatory rules as the NYMEX, as long as all of the OTC trading platforms were also included in the reporting requirements. Some of the CFTC commissioners finally broke ranks with the Director and admitted that the current system was responsible for the excessive speculation by Amaranth, but Acting Director, Walter Lukken, who took over the job after former Director Reuben Jeffery resigned prior to his scheduled testimony, held the party line that speculators cannot adversely affect trading. A house bill for better market transparency and elimination of the “Enron exemption” for OTC trading has been drafted for presentation in the US House. A lot of hard work has gone into this by the APGA, IECA, and hopefully many of you. Thanks, and here’s hoping for passage in both houses.

Crude oil remains stronger than new rope as inventories decline worldwide last week. With OPEC sending no signal to increase output, the pressure remains to retest the all-time previous high. Unleaded prices declined due to better than expected gains in inventories in spite of the BP refinery outage in the US.

A report released last week by the International Energy Agency stated what most industry participants intuit, that energy demand is growing in developed nations as people become accustomed to higher price and return to their previous trends, but the real growth is coming from developing nations as everything from refrigeration, automobiles and low cost airlines consume more oil products, and an oil shortage looms within 5 years. World oil consumption is growing at a steady 2.2% annually while we must replace over 3 million barrels per day annually to offset declines in mature fields. The report says that by 2010, OPEC will be very tight on spare capacity and by 2012 demand will be limited by higher prices. We are certainly in a secular bull market for commodities and oil and gas prices will increase substantially in the next decade.

One major concern about future oil and gas development is the concentration of reserves in national oil companies. One only has to remember the sorry state of former Soviet Union production when Yeltsin let in US oilmen, or see the demise of the Iranian oil industry to understand the inefficiencies of the State run companies. Democracy under Yeltsin proved to be a Wild West asset grab by the Oligarchs, so Putin lead the bloodless coup that put the KGB back in charge of the country and since then he has steadily brought energy assets back under Russian control. Oligarchs who played ball got to keep their jobs at a reduced level, while the renegades sit in prison cells over “tax issues.” He has kicked out one major oil company after another on contractual technicalities, raising fears of more inefficiencies in future production capabilities at a time when the world sorely needs every barrel. But lately, a new paradigm seems to be taking shape whereby the value of outsider expertise is being recognized, and major oil companies can have minority ownership in individual properties. Last week, Gazprom struck a deal with Total on an arctic gas field. Two years ago I called Putin the most important new oil sheik in the world. Now he has to prove if he can be a smart oilman too.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

7-9-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (7/6) energy settlements:
August NYMEX gas: $6.444
Summer: August-October ’07: $6.58, Winter ’07-’08: $8.323
The NYMEX one-year strip $7.67, 2-year strip $7.98, 3-year $8.05
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.951, Last Summer: $6.33
Last winter: $7.16
August Crude oil: $72.81, #2 oil $2.095

Last week’s storage report put us at 2.521 Tcf, requiring an average weekly injections of only 42 Bcf to reach last year’s levels. That, along with a forecast of milder weather and no tropical activity encouraged bears to sell more gas contracts, as prices approached year end ‘06 lows. The price gap between $6.55 and $6.36 was closed on Friday, and the only question remaining is how much lower we will trade before gas supports. A gap between $5.97 and $6.00 would be the next logical target, and although the weekly RSI is in “extreme” territory, it has certainly been lower in the past before gas markets rallied. But, a rally should occur in the near term.

Simultaneously, #2 oil closed the week at an all-time high while crude oil is within sight of its previous top. Clearly, the funds are buying crude and selling nat gas. We just don’t know to what extent. The CFTC filed a restraining order against Lake Shore Asset Management Ltd. for refusing to permit the CFTC to inspect its records. One can only suppose that Lake Shore’s refusal is due to a combination of violations and being on the wrong side of this long oil/short gas trade.

The market has provided us an opportunity to buy gas. The 20% decline from the Q2 high betters the 5 year average by 2%, and while it appears it will trade lower, this is a good place to buy gas through December or January. The 12-month strip is within $0.01 of it’s late December low. The current premium of the diminishing summer ‘07 strip above a year ago is $.48, but the current discount of the winter ‘08 strip below a year ago is $1.20. We are still in a $5.50-$8.00 trading range and over the last 72 weeks prices have settled above $8 only 15 times and below $5.50 only 12 times. During the last 53 months prices have traded below $6.04 in 31 of 53 month, or about 60% of the time. Pigs get fat, hogs get eaten. Buy some gas at this time.

Last week, BP took delivery of the British Emerald, the world's largest LNG carrier at 155,000 cubic meters, or the equivalent of about 8,800 Dts per day for 365 days. Its dual-fuel technology allows the diesel engines to run on "boil-off" gases from the cargo tanks or on diesel fuel. She is 288m long with a breadth of 44.2m.

China has banned further expansion of its corn ethanol industry, after a 40% increase in pork prices over the past year. In the U.S. land for corn produces only 50 gallons of gasoline equivalent per acre per year, versus an annual gasoline demand of 135 billion gallons. New U.S. ethanol plants coming on line could take 30 percent of next year's corn crop for auto fuel, as well as add to our natural gas supply problems. It’s a farm aid program that no one counting on farmer’s votes is willing to eliminate. Even without ethanol demand, farmers will need to increase crop yields over time due to population growth, and as the growing number of affluent consumers in the world increase their demand for meat. Although sugarcane is 3 times more efficient than corn for ethanol production, ethanol from sugarcane is more expensive than gasoline when crude is $65/Bbl.

South Korea has confirmed deposits of methane hydrates off its coast and their exploration-research program to develop the reserves kicks off this fall with at least 5 wells. South Korea hopes to develop the technology for using gas hydrates by 2015.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

6-18-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (6/15) energy settlements:
July NYMEX gas: $7.918
Summer: July-October ’07: $8.10, Winter ’07-’08: $9.76
The NYMEX one-year strip $8.92, 2-year strip $9.00, 3-year $8.93
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.864, Last Summer: $6.33
Last winter: $7.16
July Crude oil: $68.00, #2 oil $2.01

Natural gas stayed in its trading range even as crude oil clearly broke through technical resistance, making its highest weekly close since August 2006. I’d love to see the natural gas positions that commodity and hedge fund have taken on ICE (Intercontinental Exchange). It must look like two NFL teams preparing for a goal line stand. If the bulls get the hurricane they are looking for, gas is up $2 quick as a cat. But if the season is normal, gas comes off like a cheap prom dress and you’re $2 cheaper. And mark my words, some hedge fund won’t manage its risk properly and we’ll read about another loss position that will affect trading. Last year, it was Amaranth and it eventually took the prompt month under $5. As an end user facing the official start of summer, I see your choices as either partially hedging your future requirements or accruing funds for a potential run up. If you are the former, buy 50% of your needs through Sept or Oct when the prompt month trades in the $7.50-$7.60 range. The premium that you pay to hedge those months is only $0.50 higher than the last 4 monthly expirations. Another reason to buy; Commercial interests that were net short are now basically flat. They don’t want the risk either.

US storage is now at 2.255 Tcf, requiring an average weekly injection of only 54.5 Bcf to match last year’s record level. European storage facilities are forecast to be full in July, and with the Norway-UK pipeline being completed next month, the UK will take fewer LNG cargos from the spot market. That should give the US more gas to meet CDD (cooling degree day) needs while still refilling storage. Bulls are banking on several weeks of storage withdrawals during high CCD weeks to lead to a lower eventual total.

Since we became dependent on imported LNG to meet our incremental gas needs, I compare the US gas industry to a “just in time” delivery system, with storage providing the cushion for us. New storage project abound, with the latest being announced last week by Dominion Energy, which plans to spend up to $700M to build a 50-Bcf salt-cavern storage facility to serve the Northeast and Mid-Atlantic markets. Solutions to a gas industry overhaul take time, planning and huge resources. This facility will be placed into service in 2014.

Just to show we’re not alone without an energy plan. Abu Dhabi will have to divert gas from its oilfield injection program this summer to run power and desalination plants. The EIA reported that the UAE will run two of its power plants on 50 tanker trucks of fuel oil a day, which is relatively scarce due to limited refining capacity. Kuwait has warned its citizens there will be power cuts this summer. Qatar, with the world’s 3rd largest gas reserves, Saudi Arabia and Oman are all planning to build coal fired power plants. It’s more profitable to ship us clean burning natural gas to meet air quality standards while they burn coal.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

6-8-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (6/8) energy settlements:
July NYMEX gas: $7.663
Summer: July-October ’07: $7.845, Winter ’07-’08: $9.51
The NYMEX one-year strip $8.66, 2-year strip $8.76, 3-year $8.67
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.864, Last Summer: $6.33
Last winter: $7.16
July Crude oil: $64.76, #2 oil $1.898

Natural gas continues to trade in its tightly defined range. The $7.50 to $7.60 area has been supportive for the past 8 weeks and I expect gas prices to support here again and then trade back above $8.00. If you have not bought any gas to get you through hurricane season, I suggest you buy through September or October when July trades on this support. If you are well hedged but wish to add incremental positions, set triggers to bottom fish in the July contract around $7.25. The July contract has traded lower than June in 5 of the last 6 years.

As of last week’s storage report, we have 2.163 Tcf in storage with another triple digit injection expected in this week’s report. Currently, injections of just over 56 Bcf per week would get us near last year’s all-time record high. Between good storage and a historically light storm season during June, pressure will stay on gas prices to move sideways or lower through the July 4th holiday.

The geographical price disparity was never more evident than last week. While New York daily delivered gas prices we $8.35/Dt, some CIG (Colorado Interstate Gas) had to be sold for $0.15/Dt on a day when the midpoint was $0.77. CIG prices recovered to $2.50 by week’s end, punctuating the value that Kinder Morgan’s Rockies Express (REX) pipeline will have on both markets after its 2008 completion.

NIMBY’s in the northeast have postponed the construction of gas pipelines, LNG facilities, and offshore exploration, but now construction has begun on New England’s first LNG port, 12 miles out to sea. The $200 M Excelerate Energy terminal will increase gas supplies to the region at a time when it leads the country in the growth of gas fired power generation.

In the Kurdish sector of northeastern Iraq the latest test well drilled in a new field flowed oil at a rate of 18,900 b/d from Cretaceous age rock. It is the 3rd test well drilled in the field with the prior ones flowing at 30,000 b/d, and 25,000 b/d. The average US oil well produces 10.1 barrels per day. For the geology buffs, the Cretaceous age was the youngest of the Mesozoic era, following the Triassic and Jurassic.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

6-1-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (6/1) energy settlements:
July NYMEX gas: $7.878
Summer: July-October ’07: $8.04, Winter ’07-’08: $9.62
The NYMEX one-year strip $8.78, 2-year strip $8.86, 3-year $8.77
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.864, Last Summer: $6.33
Last winter: $7.16
July Crude oil: $65.08, #2 oil $1.9228

The June contract expiration at $7.591 was the 4th consecutive one in the $7.50’s. True to form, traders immediately ran prices higher after expiration, but prices failed at the $8.00 level. Although the spread between spot gas and the Jan. contract has fallen to just over a dollar, storage holders continue to inject every available molecule of gas into storage to build a safety net. Last week’s report indicated another 107 Bcf injection, bringing total working gas to 2.053 Tcf. From here, we need to average 58.6 Bcf per week to reach last year’s record of just over 3.4 Tcf. During last year’s injection season, we averaged 66.8.

For the record, July gas has expired lower than June in 12 of 17 years and 5 of the last 6. I don’t see any reason to buck that trend this year with strong storage injections as well as production gains. The $7.50’s remains an area to buy gas and the $8.20’s is still a good place to sell it.

A longer term harbinger of further oil and gas price increases;
Gazprom will cut its 2007 E&P budget by 11%.

It is estimated that if every incandescent light bulb in the US was switched to a compact fluorescent light bulb, we could close 80 power plants, or more realistically stated, we wouldn’t have to build so many new natural gas fired plants which remain the culprit in our pursuit of lower and more stable prices. Energy efficiency will be the single most important issue pushed by electric utilities and government for the next few years…………finally. When all else fails, turn to common sense.

I’ve railed against building the Alaskan and Mackenzie gas pipelines and now ExxonMobil Chairman and CEO Rex Tillerson has announced that the $16.2 billion price tag for the Mackenzie Valley pipeline is too expensive without government subsidies, saying "It may just be that the project is going to have to wait for a different cost environment." Given ExxonMobil's comment on Mackenzie, it's unlikely the Alaskan pipeline will be built either. The EIA projects 10% of our supplies will come from these pipes in the next decade. It is more likely that reserves in both basins will go to more sensible LNG or Gas to Liquids (GTL) projects.

Finally, at least some people are thinking about developing alternative energy sources. Former World Bank president, James Wolfensohn plans to form a private equity fund to invest in alternative energy. You know who his initial investors are? ……. The Kuwaitis and Saudi Arabians.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

5-18-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (5/18) energy settlements:
June NYMEX gas: $7.944
Summer: June-October '07: $8.22, Winter '07-'08: $9.74
The NYMEX one-year strip $8.88, 2-year strip $8.92, 3-year $8.75
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.72, Last Summer: $6.33
Last winter: $7.16
June Crude oil: $64.94, #2 oil $1.915

The Bank of Montreal announced that brokers hid an additional $200 M in gas trading losses, bringing their total losses to the $700 M range and it was obvious from trading activity last week that those positions have not been closed out. Through it all, gas remains range bound as it managed to settle for the week below $8 even after trading into a daily price gap left since Dec. '06. Last week's high was $8.23. The gap extends from $8.13 to $8.35. No doubt, it will be tested again this week as BoM is forced to buy more contracts.

Friday's trade to $8.23 represented a 43% increase over the Q1 low. The average Q2 run up since 2002 is 48% (50% over life of NYMEX). Last year, only 5 months after experiencing $15 gas, the Q2 high only reached $8.28, a 28% increase over the Q1 low, and that was at a time when fear was justifiable since we had production deficiencies. Still there are always those who say, "It's different this time." The most recent of those no longer work for BoM. I make this point because I'm hearing what we all hear every year at this time. "Summer will be hotter than normal." "Hurricane season will be worse than normal." "Storage won't be refilled and we'll run out of gas next winter." Maybe the funds see enough new traders in this market to take prices higher on fear alone. Since there's no transparency in the OTC markets and no chance of legislation requiring reporting before this hurricane and cooling season is over, we can't know about their furtive trading tactics. All I know is this doesn't look like a bull market. Open interests are declining and in fact June interests are roughly half of what May's were a week before expiration.

Truth of the matter is that the gas industry is in better shape than it was in 2005. Storage was at 1.599 Bcf then and it is 1.842 Bcf now. We've got more production, more LNG, and best of all more experience. We've got very good infrastructure, so if the fear mongers are correct and we have a genuinely bad weather event, the fundamentally improved infrastructure will make this a briefer price spike than in '05-'06.

The average NYMEX settlement price for 2005 was $8.62. The average settlement price for the 12 months immediately following Katrina and Rita was $9.16. The future strip prices have all of that built into them, and that's a recipe for more hedge fund failures if the fear mongers can't force the market higher.

What should consumers do? Keep your existing triggers in place to make additional purchases and don't chase gas during the 2nd quarter. You'll be better off in the spot market for your remaining gas needs than buying forward at these prices. I expect June expiration in the $7.50-7.60 range.

The single most important factor that will stabilize or even lower natural gas prices by the end of this decade will be the pipelines providing access to "stranded" gas in the Paradox, Piceance and Uinta Basins of Colorado and Utah. Their store of tight sand gas and shale gas deposits represent 1/3rd of US reserves, but the traditional pipeline paths relegated these reserves to "peaking" gas for the west coast markets. Kinder Morgan's Rockies Express Pipeline (REX) will take these reserves to mid-con and eastern markets by the winter of 2008, adding value for the producers while lowering costs for consumers even in areas where REX doesn't flow. There is light at the end of this tunnel. If you'd like detailed information about this 1,678-mile pipeline with the capacity to move 1.8 Bcfd to eastern markets, just do a search on Rockies Express Pipeline.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

5-14-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (5/11) energy settlements:
June NYMEX gas: $7.899
Summer: June-October ’07: $8.132, Winter ’07-’08: $9.654
The NYMEX one-year strip $8.80, 2-year strip $8.84, 3-year $8.74
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.72, Last Summer: $6.33
Last winter: $7.16
June Crude oil: $62.37, #2 oil $1.8823

Rumors of another non-commercial trader with an oversized position circled the gas markets last week. Big lot trades on ICE fiercely protecting $7.60 and corresponding trades propping up the NYMEX have many a sage trader thinking that somebody is holding a huge bullish position. The speculator must be counting on an early and active hurricane season because fundamentals don’t support such exuberance.

Gas storage, at 1.747 Tcf, is 200 Bcf ahead of the 5-year average. On the west coast, linepack on some systems is creating the potential for high-inventory operational flow orders. In the Mid-Continent, storage injection programs offer the only support to otherwise declining cash markets. US gas production is up and drilling activity during Q1 2007 set a 21-year high with 11,771 well completions in the 90 day period.

LNG receipts are at record highs while storage additions provide greater supply certainty and we’ve added 12.3 Bcfd of new pipeline capacity in the last year. Meanwhile, production gains in Texas, Oklahoma, and Wyoming are taking some pressure off of GOM producers in the event of another disruption.

All that said, the hedge funds rule this market and without reporting requirements for large traders in the OTC, we are somewhat at their mercy. Daily volatility has declined to $0.25 and we need to keep an eye on it. Prices historically rally out of low daily volatility.Keep triggers in place to buy additional future gas on a front month trade in the $7.25-7.30 range. The gas charts suggest that a breakout, either up or down, from the current range will occur in early June.

Unleaded gasoline remains the leader of the energy pack and it is the only commodity I view as potentially “scarce.” We need to keep an eye on it as it could trigger movement in the rest of the energy complex.

Oil and gas are the oxygen supply of the industrialized world.That’s why it was a blow to Europe when Turkmenistan and Kazakhstan signed a deal with Vladimir Putin to pipe their enormous gas reserves to Russia rather than directly to Europe. Turkmenistan has the 5th largest gas reserves in the world. Russia sells gas domestically at subsidized prices, then markets excess gas to Europe at market rates. The coup for Putin enriches Gazprom coffers while it forces Europe to look to LNG for supply diversity, which exacerbates long term US supply problems.

Here’s a shocker: Two Alaskan oil executives and three Alaskan politicians, including a former speaker of the House, were charged with bribery over the proposed gas pipeline from the North Slope to the Lower48 states. I suspect it is the tip of the iceberg. Alaskan gas should be processed as LNG or as gas-to-liquids and shipped to the most profitable markets, but the $20B plus boondoggle would make too many crooks wealthy and when it proves uneconomic, the American taxpayer willbail it out, so the project trudges forward.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

5-7-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (5/05) energy settlements:
June NYMEX gas: $7.938
Summer: June-October ’07: $8.157, Winter ’07-’08: $9.667
The NYMEX one-year strip $8.82, 2-year strip $8.85, 3-year $8.73
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.72, Last Summer: $6.33
Last winter: $7.16
June Crude oil: $61.92, #2 oil $1.8309

The short term subjects worth discussing this week are the daily doji we saw on Friday, the persistence of the current trading range and the lingering clean up of the Bank of Montreal’s trading losses.

Long time readers know that a doji is when the opening and closing price for a timeframe is the same, and it usually means a change in the price trend is impending. Our current trading range has been contained on the topside around $8 since February 2006, and this is the 8th time this $8.00 mark has been tested since then. You remember the stat, we’ve only had 11 daily closes above $8 and 12 daily closes below $5.50 in the last 64 weeks. Is the streak over and we’re off to a higher trading range? I think not and expect slightly lower prices with the traditional decline into July 4th ahead of us.

Market characteristics at week’s end were indicative that BoM was still a buyer as they continue unwinding half a billion dollars worth of bad trades. I don’t see prices declining until they finish buying to cover their shorts.

Fundamentals remain very good with storage filled to 19% above the 5-year average and a $2.00/DT profit for storage holders to harvest if they inject now. Production and LNG supplies are up year over year. Notwithstanding the Middle East malaise which provides a steady bullish backdrop, it is mostly fear of the upcoming hurricane season that keeps gas prices high, and that’s the crap shoot for consumers. Absent a seers knowledge of the weather, I can only advise that any price spike related to this hurricane season should be lower and of a shorter duration than in 2005.

Do not buy longer term gas now. Gas has expired above Friday’s closing price only once since Feb ‘06, and the average expiration price for the past 36 months is $7.52. ($6.72 for the last 12 consecutive months.)

A subsidiary of Italy’s Eni paid Dominion Resources $4.76B, or $4.75/ Mcf equivalent for proved reserves and $2.71/Mcfe for all categories of reserves for gas and oil in the Gulf of Mexico, a price that surpasses other recent Gulf deals.

We’re going to have some serious second thoughts about supporting corn based ethanol production. The US has 116 ethanol distilleries, with 78 plants under construction and 7 undergoing expansion. If all the new plants and expansions come on line, total capacity will be above 12 billion gallons per year. Up to 95% of U.S. ethanol plants use natural gas boilers because they are 7 times cheaper than ones that burn coal and corn fields consume large quantities of ammonia, which comes from natural gas. Recent Raymond James research says the ethanol boom could boost U.S. gas demand by 1% over the next two years. A Pennsylvania farmer put it best, “It looks like we’re going to take the last six inches of Midwest topsoil and burn it in our gas tanks.”

Please feel free to call me to discuss any questions you may have about your specific energy plan.

4-30-07 Energy Update

WEEKLY ENERGY MARKET UPDATE

Friday (4/27) energy settlements:
May NYMEX gas expired: $7.508
June NYMEX gas: $7.831
Summer: June-October ’07: $8.063, Winter ’07-’08: $9.63
The NYMEX one-year strip $8.75, 2-year strip $8.77, 3-year $8.67
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.72, Last Summer: $6.33
Last winter: $7.16
April Crude oil: $66.46, #2 oil $1.913

The March – May expiration prices of $7.547, $7.558 and$7.508 respectively, completed the tightest spread of these 3 months since the $0.04 range in 1998 and ties the $0.05 range of 1991, for the initial spring season of NYMEX gas trading. ’98 turned out to be the lowest priced and least volatile year of the late 90’s. The $7.50 price seems to have a feeling of market equilibrium, and incidentally the 40 month moving average is $7.52. The one year strip at $8.75 seems to have far too much insurance premium in it and I would defer longer range purchases for now.

The gas market immediately rose after the May expiration as traders piled on as soon as they found the Bank of Montreal in a losing bearish options strategy. BOM announced losses in gas trades in the $300-$400 million dollar range due to “reduced liquidity and lower volatility in the gas market during the 1st quarter.” (Last year, it was Mother Rock that collapsed a few weeks earlier.) Look for lower prices once this latest “crash and burn” incident is cleared away. 4 of the last 6 June contracts have reached their lows after becoming the prompt contract and coincident with contract expiration.

Meanwhile, crude retested its March 30th high of $66.70 after the Saudi government announced it had taken 172 Al Qaeda members into custody just as they were in the final stages of a well financed and sophisticated plan to attack its oil fields and an oil refinery. If crude can settle above this high, it should be off to test $75 again.Incidentally, when it did that last year, natural gas declined below $6.00.

June NYMEX gas closed $1.30 above the average settlement for April 27th for the last 3 yrs, yet the forward strip prices are all lower than this time over these last years. I think what that is telling me is that the present high prices are that result of the Bank of Montreal trading problems and that the market understands that we are better prepared to handle another Katrina-Rita disaster now than in 2005.

Oil giant Exxon Mobil Corp. kicked off 2007 with a 10% rise in profits, earning $9.3 billion in the January-March period. I hope you have a good year too.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

4-23-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (4/20) energy settlements:
May NYMEX gas: $7.381
Summer: May-October ’07: $7.70, Winter ’07-’08: $9.31
The NYMEX one-year strip $8.40, 2-year strip $8.48, 3-year $8.40
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.64, Last Summer: $6.33
Last winter: $7.16
May Crude oil expired: $63.38, #2 oil $1.83

Natural gas prices moved lower last week even as the EIA reported an April withdrawal from storage. Technical support is just under $7.25/Dt. We are in a good area to purchase additional May gas.

Two daily price gaps remain in the natural gas chart, one near $6.50 and another near $7.70. That seems exemplary of the volatility ahead for us, as the bulls and bears have clear targets before them.For the past two years, gas has traded lower during the month of May and with lots of gas in storage and mild weather in Europe to keep LNG flowing into the US, the fundamentals are in place for the June contract to trade lower after May expires this Thursday, but aggressive buyers shouldn’t get too greedy. Strong gasoline and crude prices will be supportive of the entire sector.

Add to your summer positions when the front month trades between $7.33 and $7.25 and keep triggers in place to buy further out if the front month should trade to $6.50.

Norway’s Snovhit LNG liquefaction facility will begin operation by end of 2007 with 240,000 DTs per day dedicated to Cove Point.

The American Geophysical Union, which publishes the “Geophysical Research Letters”, will release a short paper this Wednesday with an opinion that global warming will create upper atmosphere wind shear similar to that caused by El Nino that could reduce the number of hurricanes that form in the Atlantic Basin.

Fun fact: Meeting our future energy needs will require many alternative sources. Using photovoltaics alone, the US would require 17% of the planet's entire surface area, or 59% of the land to replace its current daily oil consumption. The entire world would require 40% of the entire planet's surface are, or 1.37 times the entire land area.

Nano technology developments in the petroleum industry may be equivalent to discovering another super giant field. Cleaner, more efficient diesel fuels are a growing priority for nano researchers. One company is already testing a nanoscale additive that can increase mileage up to 10% and reduce emissions. Others are working on cleaning up the diesel refining process. Researchers are in the early stages of developing solid nanocatalysts that can filter out harmful corrosives more efficiently and trap them for environmentally safer disposal.Here’s another reason we must support higher education at virtually any cost.

Please feel free to call me to discuss any questions you may have about your specific energy plan.