2-20-07 Energy Update

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.