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.
Monday, June 18, 2007
Monday, June 11, 2007
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.
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.
Sunday, June 3, 2007
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.
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.
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