WEEKLY ENERGY MARKET UPDATE:
Friday (2/16) energy settlements:
March NYMEX closed: $7.503
Summer ’07: $7.77, Winter ’07-’08: $9.19
The NYMEX one-year strip $8.22, 2-year strip $8.22, 3-year $8.10
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.57, Last Summer: $6.33
January Crude oil: $59.17, #2 oil $1.67
After the second highest storage withdrawal ever, gas traded lower last week. Speculators rarely sell into long weekends, so I suspect President’s Day, along with a strong rally in crude oil helped to hold up prices. We expect two more withdrawals above 200 Bcf, but we still see healthy storage inventories at the end of March. There was no significant change last week in the Commitments of Traders report after the significant exit of speculators the previous week. Natural gas remains range bound. Postpone longer term gas purchases. Lower prices will avail themselves to you before the end of March.
The cold weather has created regional spot prices in excess of $30/Dt which reflects infrastructure shortcomings and a near monopoly held by sellers in those markets. The infrastructure problems will be amplified in future years by NIMBY’s (not in my back yard) who force delays in proposed projects. Last week’s examples include the Canadian government denying access for LNG tankers to pass through its waterways to serve two terminals proposed for Maine, and two California LNG projects that the state PUC is blocking over LNG quality, stating that the nitrogen required to lower the Btu levels to US pipeline standards will increase NOx emissions in L.A.
Legislation aimed at increasing transparency and oversight of electronic over-the-counter trading of energy commodities has been introduced again in the Senate. Federal Reserve Chairman Ben Bernanke followed up last week by reaffirming the President’s Working Group on Financial Markets’ 2005 conclusion that further regulation would not be helpful in preventing market manipulation. I find it hard to handicap this outcome as Democrats have been more vocal for the bill but hedge funds donate heavily to both parties. If money isn’t the answer, ask the question again.
Hugo Chavez got a bonus last week as Venezuela and Trinidad-Tobago agreed that 75% or nearly 7.3 Tcf of the natural gas straddling their maritime border belongs to Venezuela. Venezuela needs $60/Bbl oil to balance its budget so the additional natural gas is a shot in the arm to his dictatorial powers.
Talk about irony. According to the U.S. DOE, Biodiesel made from soybean oil yields 3.2 units of energy for every 1 unit of fossil fuel energy used to produce it, while reducing CO2 emissions by 78% versus equivalent fossil fuel use. U.S. soybeans growers produce about 50 gallons of oil per acre, but palm trees yield about 650 gallons of palm oil per acre. Because of these high oil yields rainforests are being cut down to grow palm oil for American and European markets. Rainforests are nature’s carbon sinks that take CO2 out of the atmosphere and release oxygen. Such were the findings reported at The Sustainable Biodiesel Summit (SBS). Soybean growers attending the meeting want a farm bill that assures continued growth of the domestic Biodiesel industry as well as a safety net on pricing.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Tuesday, February 20, 2007
Monday, February 12, 2007
2-12-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (2/9) energy settlements:
March NYMEX closed: $7.827 (Highest Feb. 9th price ever!)
Summer ’07: $8.087, Winter ’07-’08: $9.423
The NYMEX one-year strip $8.51, 2-year strip $8.44, 3-year $8.27
4-year $8.12, 5-year $7.97 (Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.57, Last Summer: $6.33
January Crude oil: $59.89, #2 oil $1.725
Winter always comes as a surprise to modern man. So, as single digit temps finally arrive in Chicago and lake effect snow covers Buffalo again during February, the modern-day pinstriped Chicken Little bemoans of running out of natural gas before the end of March. Last week, the EIA reported a large withdrawal of 224 Bcf, leaving 2.347 Tcf in the ground, and this week’s report could be an all-time record high of 271 Bcf. With 8 more weeks to report until April 1st, average weekly declines of 105 Bcf would leave inventories at a comfortable 1.5 Tcf. The five-year average weekly draw for this period is 91 Bcf, which would leave us with 1.619 Tcf in storage. If we match last year's average weekly draw of just 70 Bcf, we would have a record 1.787 Tcf left in the ground. Chicken Little’s problem is that he’s long gas and needs to talk prices up so he can get out with minimal losses. Don’t buy the rumor.
During this recent run up in natural gas, we’ve seen extremely high volume but declining total open interests, which is a bearish indicator that a top is near. The number of spreads was down 39,000 contracts last week and the Henry Hub swaps, which are traded in 2500 Dt denominations, declined by 134,795 contracts. Clearly, some speculators are leaving the gas market.
Last week, Goldman Sachs agreed to sell its commodity index to ratings agency Standard & Poor's in a deal that some analysts believe shows the formerly bullish investment bank now believing the secular bull market in oil and gas has ended, or stated in investor parlance, since “everyone else” is now playing energy, as evidence by a 51% growth in open interest in crude since last year, the future prices have been bid up so high that there is too much risk in trading forward positions. Don’t get me wrong, speculative money still sees energy as a lucrative bet, but last year many passive investors lost money in energy which puts their money managers on report to improve performance or watch a flight of funds.
Don’t make longer term purchases at this time. Natural gas will trade lower during the 1st quarter.
Looking ahead, LNG liquefaction projects will be slower getting to market. Cost per ton of LNG per year ($/ton/yr) fell during the ‘90s, to as low at $175/ton/yr. Costs have escalated to $600/ton/yr, and construction times have increased from 36 months per train to 48. Estimations that LNG supplies would match demand in the Atlantic Basin by 2008 now show deficits through 2012. Exacerbating our problem is a US gas quality standard that restricts high BTU content cargo from our pipelines.
Just for grins, the Oil and Gas Journal ranked the cost of driving from New York to L.A. with alternative fuels. Driving a Honda Civic, it takes $215 of gasoline, for an E85 Taurus it’s 53 bushels of corn and a half barrel of oil at $225, for an M 85 methanol Taurus it’s 18 Dts of natural gas and half a barrel of oil at $620, for a VW Golf Biodiesel it’s 800 gallons of vegetable oil and $221, and the winner, a VW using CNG at $110. Only the marginal cost of fuel was considered in the calculations.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (2/9) energy settlements:
March NYMEX closed: $7.827 (Highest Feb. 9th price ever!)
Summer ’07: $8.087, Winter ’07-’08: $9.423
The NYMEX one-year strip $8.51, 2-year strip $8.44, 3-year $8.27
4-year $8.12, 5-year $7.97 (Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.57, Last Summer: $6.33
January Crude oil: $59.89, #2 oil $1.725
Winter always comes as a surprise to modern man. So, as single digit temps finally arrive in Chicago and lake effect snow covers Buffalo again during February, the modern-day pinstriped Chicken Little bemoans of running out of natural gas before the end of March. Last week, the EIA reported a large withdrawal of 224 Bcf, leaving 2.347 Tcf in the ground, and this week’s report could be an all-time record high of 271 Bcf. With 8 more weeks to report until April 1st, average weekly declines of 105 Bcf would leave inventories at a comfortable 1.5 Tcf. The five-year average weekly draw for this period is 91 Bcf, which would leave us with 1.619 Tcf in storage. If we match last year's average weekly draw of just 70 Bcf, we would have a record 1.787 Tcf left in the ground. Chicken Little’s problem is that he’s long gas and needs to talk prices up so he can get out with minimal losses. Don’t buy the rumor.
During this recent run up in natural gas, we’ve seen extremely high volume but declining total open interests, which is a bearish indicator that a top is near. The number of spreads was down 39,000 contracts last week and the Henry Hub swaps, which are traded in 2500 Dt denominations, declined by 134,795 contracts. Clearly, some speculators are leaving the gas market.
Last week, Goldman Sachs agreed to sell its commodity index to ratings agency Standard & Poor's in a deal that some analysts believe shows the formerly bullish investment bank now believing the secular bull market in oil and gas has ended, or stated in investor parlance, since “everyone else” is now playing energy, as evidence by a 51% growth in open interest in crude since last year, the future prices have been bid up so high that there is too much risk in trading forward positions. Don’t get me wrong, speculative money still sees energy as a lucrative bet, but last year many passive investors lost money in energy which puts their money managers on report to improve performance or watch a flight of funds.
Don’t make longer term purchases at this time. Natural gas will trade lower during the 1st quarter.
Looking ahead, LNG liquefaction projects will be slower getting to market. Cost per ton of LNG per year ($/ton/yr) fell during the ‘90s, to as low at $175/ton/yr. Costs have escalated to $600/ton/yr, and construction times have increased from 36 months per train to 48. Estimations that LNG supplies would match demand in the Atlantic Basin by 2008 now show deficits through 2012. Exacerbating our problem is a US gas quality standard that restricts high BTU content cargo from our pipelines.
Just for grins, the Oil and Gas Journal ranked the cost of driving from New York to L.A. with alternative fuels. Driving a Honda Civic, it takes $215 of gasoline, for an E85 Taurus it’s 53 bushels of corn and a half barrel of oil at $225, for an M 85 methanol Taurus it’s 18 Dts of natural gas and half a barrel of oil at $620, for a VW Golf Biodiesel it’s 800 gallons of vegetable oil and $221, and the winner, a VW using CNG at $110. Only the marginal cost of fuel was considered in the calculations.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Saturday, February 10, 2007
2-5-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (2/2) energy settlements:
March NYMEX closed: $7.437
Summer ’07: $7.748, Winter ’07-’08: $8.96
The NYMEX one-year strip $8.13, 2-year strip $8.06, 3-year $7.91
4-year $7.77, 5-year $7.63 (Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.57, Last Summer: $6.33
January Crude oil: $59.21, #2 oil $1.684
The February NYMEX natural gas contract expired at $6.917. Now, the March contract is doing what it has done in early February for 13 of the last 14 years, run up and then decline into expiration. In light of the $9/Bbl run up in crude, it’s surprising that gas hasn’t run up even further. Even as the coldest weather of this season moves across our most heavily populated areas, we see signs that the run up will be short lived. First of all, Punxsutawney Phil didn’t see his shadow on Friday. All the satellite equipped forecasters seem to agree with the furry prognosticator, issuing reports that a warm up will begin in mid-February.
There is significance to Ground Hog’s day in the gas industry as it is the modern manifestation of the ancient celebration marking the "cross-quarter day" of the season, the day half way between Winter Solstice and Spring Equinox. In other words, winter is more than halfway over and while fear mongers talk about the reduced surplus in natural gas storage, it’s a good time to do the math. Last week, the EIA reported a withdrawal of 186 Bcf, leaving us with a record level for this time of year of 2.571 Tcf. You would have to make that 186 Bcf drawdown every week until March 31st to take storage below 1 Tcf and if this week’s report is 200 Bcf and we withdraw 100 B’s per week until the end of March, we’ll still have the second highest all-time storage inventory exiting this winter.
Wait on buying longer term natural gas. The 1st quarter low should come in around the expiration of the March or April gas contract.
While the news is filled with record profits from Exxon-Mobil and Chevron, the profit margin on natural gas produced from newly drilled wells isn’t too spectacular according to CERA, Cambridge Energy Research Associates. They reported that the finding cost for independent producers since 2005 ranged from $4 to $12/Mcf, and that new discoveries would fail to return a 10% return on investment. High rig rates and soaring service costs have begun to erode the profit in many wells despite strong market prices. All the while, the record number of well completions is “being totally offset by declining per-well productivity.” The mature nature of North American reservoirs means that new gas comes from reservoirs that are “deeper, smaller, technically more challenging or more distant from markets”.
The first gas-to-liquids products produced by the Oryx GTL plant in Qatar will be ready for international markets by the end of March. This is the world's first commercial scale GTL plant using the new, Sasol low-temperature process. The plant will convert 330 MMcfd from Qatar's vast North field into 34,000 b/d of ultra low-sulfur diesel, 24,000 b/d of diesel, 9,000 b/d of naphtha, and 1,000 b/d of liquid petroleum gas. The diesels will be sent to Europe and naphtha to the Far East. The LPG will be used for local consumption. This process should be considered as an alternative to an Alaskan gas pipeline.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (2/2) energy settlements:
March NYMEX closed: $7.437
Summer ’07: $7.748, Winter ’07-’08: $8.96
The NYMEX one-year strip $8.13, 2-year strip $8.06, 3-year $7.91
4-year $7.77, 5-year $7.63 (Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.57, Last Summer: $6.33
January Crude oil: $59.21, #2 oil $1.684
The February NYMEX natural gas contract expired at $6.917. Now, the March contract is doing what it has done in early February for 13 of the last 14 years, run up and then decline into expiration. In light of the $9/Bbl run up in crude, it’s surprising that gas hasn’t run up even further. Even as the coldest weather of this season moves across our most heavily populated areas, we see signs that the run up will be short lived. First of all, Punxsutawney Phil didn’t see his shadow on Friday. All the satellite equipped forecasters seem to agree with the furry prognosticator, issuing reports that a warm up will begin in mid-February.
There is significance to Ground Hog’s day in the gas industry as it is the modern manifestation of the ancient celebration marking the "cross-quarter day" of the season, the day half way between Winter Solstice and Spring Equinox. In other words, winter is more than halfway over and while fear mongers talk about the reduced surplus in natural gas storage, it’s a good time to do the math. Last week, the EIA reported a withdrawal of 186 Bcf, leaving us with a record level for this time of year of 2.571 Tcf. You would have to make that 186 Bcf drawdown every week until March 31st to take storage below 1 Tcf and if this week’s report is 200 Bcf and we withdraw 100 B’s per week until the end of March, we’ll still have the second highest all-time storage inventory exiting this winter.
Wait on buying longer term natural gas. The 1st quarter low should come in around the expiration of the March or April gas contract.
While the news is filled with record profits from Exxon-Mobil and Chevron, the profit margin on natural gas produced from newly drilled wells isn’t too spectacular according to CERA, Cambridge Energy Research Associates. They reported that the finding cost for independent producers since 2005 ranged from $4 to $12/Mcf, and that new discoveries would fail to return a 10% return on investment. High rig rates and soaring service costs have begun to erode the profit in many wells despite strong market prices. All the while, the record number of well completions is “being totally offset by declining per-well productivity.” The mature nature of North American reservoirs means that new gas comes from reservoirs that are “deeper, smaller, technically more challenging or more distant from markets”.
The first gas-to-liquids products produced by the Oryx GTL plant in Qatar will be ready for international markets by the end of March. This is the world's first commercial scale GTL plant using the new, Sasol low-temperature process. The plant will convert 330 MMcfd from Qatar's vast North field into 34,000 b/d of ultra low-sulfur diesel, 24,000 b/d of diesel, 9,000 b/d of naphtha, and 1,000 b/d of liquid petroleum gas. The diesels will be sent to Europe and naphtha to the Far East. The LPG will be used for local consumption. This process should be considered as an alternative to an Alaskan gas pipeline.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
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