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.