3-19-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (3/16) energy settlements:
April NYMEX closed: $6.924
Summer ’07: $7.29, Winter ’07-’08: $8.92
The NYMEX one-year strip $7.97, 2-year strip $8.07, 3-year $8.01
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.61, Last Summer: $6.33
Last winter: $7.16
April Crude oil: $57.13, #2 oil $1.69

LNG supplies continue to be unseasonably high with average daily send outs over 2.5 Bcfd last week which combined with milder weather to give us net daily injections into storage. Since 2000, we have ended the winter season with storage levels as low as 642 Bcf in’03 and as high as 1,695 Bcf last year. The average level has been1,134 B’s. We’re at 1,516 B’s as of March 9th and are on track to be just above the average by the end of March.

Last week, natural gas settled below the weekly trend line that has supported prices since September ’06, providing impetus for a lower expiration of the April contract and a buying opportunity for summer gas, before the 2nd quarter run up. The $6.55 area offers formidable support for April gas but once breached, $6.38 would close a gap left on Jan. 19th. I advise that you raise previous trigger prices to begin scaling in summer purchases off of these April prices.

Imperial Oil now says that Canada’s 1.2 Bcfd Mackenzie Gas Pipeline will cost nearly twice as much as previously projected and will begin flowing gas at least two years later than planned, with 2014 now the start-up date. Costs are estimated at $16.2 billion Canadian.Every aspect from pipe cost to engineering is higher. Considering that an 80 mile Transco expansion project planned next year had to source pipe out of Greece, it’s hard to imagine how projects like Mackenzie or the mammoth Alaskan Gas Pipeline would ever be completed economically or without disrupting other gas projects worldwide.

Previously barred from ownership of seats on the NYMEX, an affiliate of D. E. Shaw Company became the first hedge fund to gain membership on the exchange.

While speculators can exacerbate volatility in a tight natural gas market, they are not responsible for the underlying problems that put us in this state. They didn’t restrict drilling offshore and on federal lands, nor delay or kill the construction of LNG terminals. They didn’t persuade our youth over the last 15 years to study computer science instead of petroleum engineering which has lead to the industry’s manpower shortage. The secular bull market in natural gas is the latest of the boom and bust cycles that have always been a part of the energy market. The fundamental problems of this market are slowly improving but until this “big ship” turns around, speculators can use events like weather as their launching pad to expand volatility. This is why I focus each week on “technical” aspects of gas price activity, because until fundamental changes cause the hedge funds to move out of gas, you need to know what triggers their buying and selling. It is also why you need to support the IECA, APGA and Senator Bingaman’s efforts to create limpid markets in ALL gas trading platforms, so we can see their positions.

Not that it’s about the oil, but Iraqi leaders are trying to develop an oil revenue sharing plan based on distributing revenue by population, which is thought to be 20% Sunni, 20% Kurds, and 60% Shiite. Iraq has 80 known oil fields, 65 of which will be bid out for development contracts once they can settle on the split.

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