WEEKLY ENERGY MARKET UPDATE:
Friday (9/21) energy settlements:
October NYMEX gas closed: $6.08
Winter ’07-’08: $7.85
The NYMEX one-year strip $7.64, 2-year strip $7.97, 3-year $8.05
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.758, Last Summer: $6.33
Last winter: $7.16
September Crude oil: $81.62, #2 oil $2.256
Gas prices drifted lower last week in time for the October contract expiration this Wednesday. About 3.4 Bcf/d was shut-in in the Gulf of Mexico in preparation for the almost-storm Jerry, but LNG jumped up slightly to 1.9 Bcf/d, and Canadian imports increased by 0.8 Bcf/d to help offset some of the Gulf reductions. Storage injections for last week are expected to be 57 to 60 Bcf which keeps us on track for a new all-time record that will approach 3.6 Tcf.
Be prepared to add to gas needs through January over the next two weeks. Conservative buyers should purchase the term at the expiration of the October contract, but history shows that November prices will decline in the first half of October before the winter rally begins. The 4th quarters always produce a run up in gas prices and although November gas has expired lower than October 4 times in the past 16 years, it has never expired lower since 2000. The Q4 high historically doubles the Q3 low, which is $5.23.
Then keep plenty of powder dry to buy ahead during the Q1 ‘08 low. Early predictions are for a mild, La Nina winter which will depress gas prices in Q1 if it proves true.
Gas supplies look abundant currently and through 2009, but there is a disturbing trend of drilling rigs leaving the Gulf of Mexico because rig owners can get longer contracts for more money in places like the west coast of Africa, Brazil and the Middle East. The number of rigs in the GOM has declined by 19 since this time last year; down to a total of 72. At this time in 1997, the count was 122, according to Baker Hughes. GOM production decline rates are among the most severe in this hemisphere so any slowdown in drilling will cause a steep decline in production in the coming years. We’ll have to fill that gap with LNG and my research shows LNG supplies from the world’s largest gas fields topping out in 2015.
Crude oil continued to smash records as everyone from retired former Exxon CEO Larry Raymond to the research team at Goldman Sachs talked about an impending oil shortage. Raymond cited the industry’s multi-trillion dollar investment needs along with a shortage of technically savvy oil engineers. Goldman spoke to water and labor bottlenecks preventing significant increases in the production of Canadian tar sands, the nationalization of some oil and gas assets which leads to reduced output and no further foreign input of capital, Biofuels’ inflationary effect on both oil and food prices, and technical problems at Gas-to-Liquids plants that could take GTL off the table with less than $70 oil. Both expressed the need to moderate demand. I guess the way I’d put this is that there is no shortage of oil, there is just a shortage of oil at low prices. Since the 1960s, two barrels of oil have been consumed for every barrel found, while alternative energy is going nowhere. For example, wind and solar power will only supply about 1% of global energy demand by 2030. That means that fossil fuels will remain the dominant energy source in this century. But, don’t run for the exits just yet. Scarcity has a history of being followed by gluts in the oil industry. The secular bull market in energy means that the future lows will be higher lows, but there will still be periodic downtrends in the price of oil and products, and don’t be surprised if a weak dollar isn’t exacerbating this run up more than impending gasoline lines.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Monday, September 24, 2007
Monday, September 17, 2007
9-17-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (9/14) energy settlements:
October NYMEX gas closed: $6.279
Winter ’07-’08: $7.81
The NYMEX one-year strip $7.62, 2-year strip $7.95, 3-year $8.00
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.758, Last Summer: $6.33
Last winter: $7.16
September Crude oil: $79.10, #2 oil $2.2078
Trading patterns suggest that a large trader is short October gas. The CFTC claims that ICE (Intercontinental Exchange, which trades OTC and is not subject to CFTC oversight) is providing confidential position reports to the commission and that no trader appears to be in a position that would adversely affect the orderly operation of the gas market. I hope so, but there are other OTC market makers who don’t report and we may not have the clear picture yet. Regardless, October gas was up $0.75 from the previous week while weather as of 9/14 was not a factor and storage matches last year’s record level for this week at 3.069 Tcf in the ground.
Gas has traded higher mid-month and then declined into expiration each month since July. I expect to see price weakness in the October expiration just as there has been expiration weakness in 17 of the last 21 months, (April and May being the only exceptions this year). If that occurs, don’t hesitate to buy future gas positions, because natural gas always rallies in the 4th quarter and it usually turns bullish in early October.
Crude oil traded up to $80.35 last week. Behind the hype of this bull market lurks a fact few wish to confront. The dollar’s weakness makes the increase in crude a bigger problem for the US than the EU. Crude trades in dollars, so $80 crude is just over 57 bucks to the French or Italians and about $40 to the British. The US spends over $8.5 billion per month in Iraq and has chosen to borrow the funds rather than pay for it by reducing other expenses or increasing taxes. The lingering effect is more pressure on the dollar internationally and a greater energy “tax” domestically. Interestingly, the OPEC “price hawks” like Chavez also face a conundrum. Like a vengeful spouse in a bad divorce they want to harm the US economy with high oil prices, but they can’t live without our alimony payments for their crude. As it shakes out, a recession will hurt all sides but the little guys will pay the biggest price. In the interim, we all need to conserve energy. Driving less and watching the thermostat will help us financially and environmentally.
The most economical way to develop Alaskan gas reserves has long seemed to be liquefying them into LNG or converting them to ultra-clean diesel in a gas to liquids operation, rather than building a mammoth pipeline, yet the pipeline continues to have life. Last week, Bill Allen, the former chairman of VECO Corp, testified that he paid a lawmaker to help keep him in office and advocate for the construction of the pipe. The money was paid to former House Speaker Pete Kott in an inflated invoice for a flooring job to Kott’s business. That’s one down. How many more to go?
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (9/14) energy settlements:
October NYMEX gas closed: $6.279
Winter ’07-’08: $7.81
The NYMEX one-year strip $7.62, 2-year strip $7.95, 3-year $8.00
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.758, Last Summer: $6.33
Last winter: $7.16
September Crude oil: $79.10, #2 oil $2.2078
Trading patterns suggest that a large trader is short October gas. The CFTC claims that ICE (Intercontinental Exchange, which trades OTC and is not subject to CFTC oversight) is providing confidential position reports to the commission and that no trader appears to be in a position that would adversely affect the orderly operation of the gas market. I hope so, but there are other OTC market makers who don’t report and we may not have the clear picture yet. Regardless, October gas was up $0.75 from the previous week while weather as of 9/14 was not a factor and storage matches last year’s record level for this week at 3.069 Tcf in the ground.
Gas has traded higher mid-month and then declined into expiration each month since July. I expect to see price weakness in the October expiration just as there has been expiration weakness in 17 of the last 21 months, (April and May being the only exceptions this year). If that occurs, don’t hesitate to buy future gas positions, because natural gas always rallies in the 4th quarter and it usually turns bullish in early October.
Crude oil traded up to $80.35 last week. Behind the hype of this bull market lurks a fact few wish to confront. The dollar’s weakness makes the increase in crude a bigger problem for the US than the EU. Crude trades in dollars, so $80 crude is just over 57 bucks to the French or Italians and about $40 to the British. The US spends over $8.5 billion per month in Iraq and has chosen to borrow the funds rather than pay for it by reducing other expenses or increasing taxes. The lingering effect is more pressure on the dollar internationally and a greater energy “tax” domestically. Interestingly, the OPEC “price hawks” like Chavez also face a conundrum. Like a vengeful spouse in a bad divorce they want to harm the US economy with high oil prices, but they can’t live without our alimony payments for their crude. As it shakes out, a recession will hurt all sides but the little guys will pay the biggest price. In the interim, we all need to conserve energy. Driving less and watching the thermostat will help us financially and environmentally.
The most economical way to develop Alaskan gas reserves has long seemed to be liquefying them into LNG or converting them to ultra-clean diesel in a gas to liquids operation, rather than building a mammoth pipeline, yet the pipeline continues to have life. Last week, Bill Allen, the former chairman of VECO Corp, testified that he paid a lawmaker to help keep him in office and advocate for the construction of the pipe. The money was paid to former House Speaker Pete Kott in an inflated invoice for a flooring job to Kott’s business. That’s one down. How many more to go?
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Monday, September 10, 2007
9-10-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (9/7) energy settlements:
October NYMEX gas closed: $5.501
Winter ’07-’08: $7.353
The NYMEX one-year strip $7.22, 2-year strip $7.67, 3-year $7.81
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.758, Last Summer: $6.33
Last winter: $7.16
September Crude oil: $76.70, #2 oil $2.143
This week I know what it’s like to be a weatherman in San Diego. All he gets to say is, “Tomorrow will be clear and 72 degrees, just like yesterday and today.” Then he talks about everybody else’s weather. There is nothing new to say about natural gas this week that wasn’t said last week. October gas, the winter strip and one, two and three year strips all closed the week within a few cents of last week and at or near lows for the year. If you have no future hedges in place, you need to buy some gas now. If you can afford to be a little greedy, wait a little longer as I think it will trade lower by Labor Day.
Total working gas in storage reached 3.0 Tcf earlier than ever before and with 9 weeks left in the traditional injection season; a new all-time record seems inevitable. More good news for gas consumers lies in 2007 Canadian production statistics. In the 4th Q of ’06, I reported that Canadian gas exports to the US would likely decline in ‘07 as Canadian drilling rates had declined at the same time gas demand for the Athabasca tar sands was increasing. But, Canadian gas production volumes have been larger than expected during the first half of ’07 due to the unexpected resilience of the Western Canada Sedimentary Basin. Bottom line; Canadian production has declined overall only 1% from ’06 levels, and exports to the US in the first 6 months of ‘07 are basically the same as ‘06 even though drilling footage is off by 28% vs. the ’06 pace. But, with no evidence that drilling will pick up in the near future our luck won’t hold out in ’08. Ample Canadian supplies and additional LNG production coupled with no significant lost production days to Gulf storms has helped create a mini gas glut, and this buying opportunity.
Even as Canadian production experiences natural declines, the US supply picture should remain rosy through 2008 as LNG supplies increase worldwide by 25% next year. US imports are expected to increase about 40% as a result. Worldwide liquefaction capacity should increase to about 27 Bcf/d by the end of ‘07 and to 34 Bcf/d by end of ’08. Global gas demand growth is estimated at about 3% annually, so the 7 Bcf/d increase in supply will go to the US market when it cannot be used elsewhere because we have the best developed storage system in the world to absorb the overhang in supply that occurs seasonally.
While natural gas prices fall, crude oil is about to re-test all-time highs, as crude continues on the bullish trend that began in January. As I look for a fundamental explanation, one idea keeps reoccurring to me. In addition to increased Chinese and Indian demand, the top ten exporting nations are also using more oil at home for their rising populations and growing number of automobiles. Chronically high crude prices may be the results of the marketplace discounting this trend of reduced exportation capability.
Looking ahead, over the next few months the Nuclear Regulatory Commission (NRC) expects to receive 12 applications to build new nuclear-power reactors. Applications for another 15 are expected next year. These will be the first new nuclear plants in America in 30 years. The next generation of nuclear plants will be simpler and safer than existing plants. That should make it easier to obtain operating permits, and help to get them built faster and run cheaper. While we slowly move back on the nuclear energy track, India’s nuclear energy ambitions have hit a major roadblock due to a shortage of indigenous uranium, threatening new capacity additions. According to India’s government statistics, uranium reserves in the country can sustain 10,000 Mw of capacity. The current capacity of the country is a little over 4,000 Mw. This will force India to further seek LNG and oil to meet power needs. It’s no wonder that we’re in a secular bull market for energy for at least a generation.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (9/7) energy settlements:
October NYMEX gas closed: $5.501
Winter ’07-’08: $7.353
The NYMEX one-year strip $7.22, 2-year strip $7.67, 3-year $7.81
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.758, Last Summer: $6.33
Last winter: $7.16
September Crude oil: $76.70, #2 oil $2.143
This week I know what it’s like to be a weatherman in San Diego. All he gets to say is, “Tomorrow will be clear and 72 degrees, just like yesterday and today.” Then he talks about everybody else’s weather. There is nothing new to say about natural gas this week that wasn’t said last week. October gas, the winter strip and one, two and three year strips all closed the week within a few cents of last week and at or near lows for the year. If you have no future hedges in place, you need to buy some gas now. If you can afford to be a little greedy, wait a little longer as I think it will trade lower by Labor Day.
Total working gas in storage reached 3.0 Tcf earlier than ever before and with 9 weeks left in the traditional injection season; a new all-time record seems inevitable. More good news for gas consumers lies in 2007 Canadian production statistics. In the 4th Q of ’06, I reported that Canadian gas exports to the US would likely decline in ‘07 as Canadian drilling rates had declined at the same time gas demand for the Athabasca tar sands was increasing. But, Canadian gas production volumes have been larger than expected during the first half of ’07 due to the unexpected resilience of the Western Canada Sedimentary Basin. Bottom line; Canadian production has declined overall only 1% from ’06 levels, and exports to the US in the first 6 months of ‘07 are basically the same as ‘06 even though drilling footage is off by 28% vs. the ’06 pace. But, with no evidence that drilling will pick up in the near future our luck won’t hold out in ’08. Ample Canadian supplies and additional LNG production coupled with no significant lost production days to Gulf storms has helped create a mini gas glut, and this buying opportunity.
Even as Canadian production experiences natural declines, the US supply picture should remain rosy through 2008 as LNG supplies increase worldwide by 25% next year. US imports are expected to increase about 40% as a result. Worldwide liquefaction capacity should increase to about 27 Bcf/d by the end of ‘07 and to 34 Bcf/d by end of ’08. Global gas demand growth is estimated at about 3% annually, so the 7 Bcf/d increase in supply will go to the US market when it cannot be used elsewhere because we have the best developed storage system in the world to absorb the overhang in supply that occurs seasonally.
While natural gas prices fall, crude oil is about to re-test all-time highs, as crude continues on the bullish trend that began in January. As I look for a fundamental explanation, one idea keeps reoccurring to me. In addition to increased Chinese and Indian demand, the top ten exporting nations are also using more oil at home for their rising populations and growing number of automobiles. Chronically high crude prices may be the results of the marketplace discounting this trend of reduced exportation capability.
Looking ahead, over the next few months the Nuclear Regulatory Commission (NRC) expects to receive 12 applications to build new nuclear-power reactors. Applications for another 15 are expected next year. These will be the first new nuclear plants in America in 30 years. The next generation of nuclear plants will be simpler and safer than existing plants. That should make it easier to obtain operating permits, and help to get them built faster and run cheaper. While we slowly move back on the nuclear energy track, India’s nuclear energy ambitions have hit a major roadblock due to a shortage of indigenous uranium, threatening new capacity additions. According to India’s government statistics, uranium reserves in the country can sustain 10,000 Mw of capacity. The current capacity of the country is a little over 4,000 Mw. This will force India to further seek LNG and oil to meet power needs. It’s no wonder that we’re in a secular bull market for energy for at least a generation.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Monday, September 3, 2007
9-3-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (8/31) energy settlements:
October NYMEX gas closed: $5.468
Winter ’07-’08: $7.397
The NYMEX one-year strip $7.25, 2-year strip $7.69, 3-year $7.81
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.758, Last Summer: $6.33
Last winter: $7.16
September Crude oil: $74.04, #2 oil $2.042
Last week was the lowest weekly close since the Amaranth meltdown last September, and last Wednesday’s expiration of the September contract was the lowest monthly expiration since the Amaranth induced fall in the Oct ’06 contract. Prior to that, you have to go back to Sept ’04 to find a lower monthly settlement. The one year strip out of October at $7.25 seems like a relatively cheap way to take the “probably” out of your energy budget. Given that the mid-point of the long standing trading range between $5.50 and $8.00 is $6.75 and the average spot price of the past 12-months is also $6.75, the “insurance premium” in the one-year strip is only $0.50/Dt. Consider buying a slice of the one year strip as insurance.
If your horizons are shorter, the Nov-March winter strip that was $9.80 back in June has tumbled to $7.40, only a $0.24 premium to the ’05-’06 average settlement prices. The Nov-Dec portion at $6.92 is extremely attractive, while the Nov-Jan at $7.22 is your most prudent risk-reward purchase. The Dec-March strip at $7.67 and the Jan-March at $7.77 are less attractive.
The EIA reported storage at 2.969 Tcf last week. With cooler temps ahead, a new record by Nov. 1st at 3.5 Tcf would only require a average weekly injection of 53 Bcf per week; 63 Bcf would take us to 3.6 Tcf and that’s not out of the question.
While gas prices can move lower given the current fundamentals, please remember that pigs get fat and hogs get eaten. This is only the 13th time in the past 81 weeks that natural gas has settled below $5.50. Buy a percentage of your future needs “average down” when these attractive prices are available.
Watching the European energy markets reminds me of Will Rogers’ saying that “Diplomacy is saying nice doggie while looking for a rock.” Europe must import energy. Russia has lots of gas, oil and uranium. Russia’s KGB trained leadership has already shown the willingness to use energy as a bargaining chip to forward its political goals. The European Union is trying to establish new rules for the ownership of power generation and gas and power distribution systems that would thwart Russian efforts to own European energy “downstream” assets. Russia has cried foul and stated it will do everything “legally in its power” to stop the EU’s efforts. Energy is the oxygen supply of the industrialized world and Russia’s energy assets will influence political policy from Europe to Asia for the next generation.
It’s not what you don’t know, as much as what you think you know that’s wrong that can hurt you. A team of Carnegie Mellon University researchers will report in the upcoming journal Environmental Science and Technology that liquefied natural gas (LNG) used for electricity generation could have 35% higher lifecycle greenhouse gas emissions than coal used in advanced power plant technologies.
North America will probably experience a natural gas shortage before any other region of the world. North America has only 4.6% of the world's gas reserves but consumes 30.3% of the world's production, with the US consuming the lion’s share. The proved and probable reserves to production ratio is only 9 years. It is easy to see that present consumption rates cannot be maintained for long without importing large amounts of LNG.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (8/31) energy settlements:
October NYMEX gas closed: $5.468
Winter ’07-’08: $7.397
The NYMEX one-year strip $7.25, 2-year strip $7.69, 3-year $7.81
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.758, Last Summer: $6.33
Last winter: $7.16
September Crude oil: $74.04, #2 oil $2.042
Last week was the lowest weekly close since the Amaranth meltdown last September, and last Wednesday’s expiration of the September contract was the lowest monthly expiration since the Amaranth induced fall in the Oct ’06 contract. Prior to that, you have to go back to Sept ’04 to find a lower monthly settlement. The one year strip out of October at $7.25 seems like a relatively cheap way to take the “probably” out of your energy budget. Given that the mid-point of the long standing trading range between $5.50 and $8.00 is $6.75 and the average spot price of the past 12-months is also $6.75, the “insurance premium” in the one-year strip is only $0.50/Dt. Consider buying a slice of the one year strip as insurance.
If your horizons are shorter, the Nov-March winter strip that was $9.80 back in June has tumbled to $7.40, only a $0.24 premium to the ’05-’06 average settlement prices. The Nov-Dec portion at $6.92 is extremely attractive, while the Nov-Jan at $7.22 is your most prudent risk-reward purchase. The Dec-March strip at $7.67 and the Jan-March at $7.77 are less attractive.
The EIA reported storage at 2.969 Tcf last week. With cooler temps ahead, a new record by Nov. 1st at 3.5 Tcf would only require a average weekly injection of 53 Bcf per week; 63 Bcf would take us to 3.6 Tcf and that’s not out of the question.
While gas prices can move lower given the current fundamentals, please remember that pigs get fat and hogs get eaten. This is only the 13th time in the past 81 weeks that natural gas has settled below $5.50. Buy a percentage of your future needs “average down” when these attractive prices are available.
Watching the European energy markets reminds me of Will Rogers’ saying that “Diplomacy is saying nice doggie while looking for a rock.” Europe must import energy. Russia has lots of gas, oil and uranium. Russia’s KGB trained leadership has already shown the willingness to use energy as a bargaining chip to forward its political goals. The European Union is trying to establish new rules for the ownership of power generation and gas and power distribution systems that would thwart Russian efforts to own European energy “downstream” assets. Russia has cried foul and stated it will do everything “legally in its power” to stop the EU’s efforts. Energy is the oxygen supply of the industrialized world and Russia’s energy assets will influence political policy from Europe to Asia for the next generation.
It’s not what you don’t know, as much as what you think you know that’s wrong that can hurt you. A team of Carnegie Mellon University researchers will report in the upcoming journal Environmental Science and Technology that liquefied natural gas (LNG) used for electricity generation could have 35% higher lifecycle greenhouse gas emissions than coal used in advanced power plant technologies.
North America will probably experience a natural gas shortage before any other region of the world. North America has only 4.6% of the world's gas reserves but consumes 30.3% of the world's production, with the US consuming the lion’s share. The proved and probable reserves to production ratio is only 9 years. It is easy to see that present consumption rates cannot be maintained for long without importing large amounts of LNG.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
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