WEEKLY ENERGY MARKET UPDATE:
Friday (11/23) energy settlements:
December NYMEX gas closed: $7.70
Winter ’07-’08: $7.92
The NYMEX one-year strip $7.93, 2-year strip $8.17, 3-year $8.24
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.953, Last Summer: $6.79
Last winter: $7.16
Crude oil: $98.18, #2 oil $2.70
As gas expired the day after Thanksgiving at $7.70, I was reminded that last year it closed the day before Thanksgiving at $7.70. It’s just another reminder that the trading patterns this year have been very similar. December gas expires this Wednesday and it looks like we will close out slightly lower than the ’07 settlement of $8.318. Keep your triggers in place to buy $7.50 down to $7.25 or accept the expiration price for December gas. Keep the current trading range in mind as you plan future purchases. Over the last 92 trading weeks prices have settled above $8 only 17 times (twice during ’07) and below $5.50 only 12 times (once ’07), with only one monthly settlement above $8 during that period.
After the December contract expiration, the tendency is for gas to rally during mid-December. Please do not make a fear based purchase of future gas during that rally. Last year, the low for Q1 prices arrived on December 28th. I don’t expect that to happen this year, but anything can in this market so it is time to gather the decision makers together and determine what you will do if gas prices come to your longer term buying targets.
As we watch crude oil toy with the $100 mark, it reminds me of the difficulty in trying to set parameters to establish what a fair value should be for any commodity. History has shown us that markets can go far higher than we ever expected and vice versa, far lower than we dreamed. As we approach the Q1 low, it is a time to reassess if you are a budget driven gas buyer or a low cost buyer. Since Katrina and Rita, the fear premium built into future gas prices has made hedging for a year or more an expensive practice that has been rewarded only briefly during the 2nd and 4th quarter run ups. In our southeastern markets, with the exception of the Katrina-Rita timeframe buying interstate basis month to month has always been cheaper than hedging it on an annual basis. So, the deck is stacked against the cautious, while Monday morning quarterbacks proliferate among those who would benchmark the performance of the poor gas buyer.
When I peer into my crystal ball for 2008, I see more domestic production, more LNG supplies, and new pipelines connecting stranded gas to the interstate system. It’s a recipe to become a bear, but something new has been injected into the mix. The combination of a weak dollar and internationally traded LNG filling our marginal supply needs has me concerned. At 8 Euros, gas is worth only $5.37 to Europeans, or better stated, if they are willing to pay 8 Euros, we’ve got to pay $11.92 to match them, and the greenback doesn’t look to get any stronger as we sell more debt to finance the Iraq War. Fortunately, the old European standard of pricing gas in a 6:1 ratio against crude oil is vanishing but no new system has yet emerged. The marketplace will watch with great interest to see if their new pricing standard is based upon associated products such as fertilizer and ammonia. I’ll have more to say on this topic, as well as discussions about where the one-year strip price could trade during the Q1 low.
What does a rise in gasoline prices mean to the US economy? According to “The Economist”, a one cent rise in the price of gasoline equals a $1.2 billion reduction in disposable income and results in a $600 million decline in consumer spending, so the $0.80/gallon premium we are paying over this time last year is a mammoth “tax” on Americans. But, as badly as higher gasoline prices affect our economy, it is less than the impact from tighter credit and falling housing prices. According to the same article, residential housing makes up 1/3 of all household wealth at $21 trillion. A 10% decline in housing prices has a far greater affect on consumer spending that the “oil tax” but together they make another “perfect storm” that we must withstand.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Monday, November 26, 2007
Monday, November 19, 2007
11-19-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (11/16) energy settlements:
December NYMEX gas closed: $8.001
Winter ’07-’08: $8.24
The NYMEX one-year strip $8.16, 2-year strip $8.34, 3-year $8.34
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.953, Last Summer: $6.79
Last winter: $7.16
Crude oil: $95.10, #2 oil $2.587
Happy Thanksgiving! Even as we survey all the craziness that surrounds us, we have so many reasons to give thanks.
Natural gas is trading in a manner very similar in action and price to last year. The only difference of concern is the net long position held by Commercial traders, usually indicative of an impending price increase, but perhaps they are just getting set for the traditional December rally. Last week’s settle above $8 was only the 2nd this year and it’s worth noting that the only expiration above $7.60 in the last 21 months was last December.
Throughout the life of the NYMEX gas contract, the January contract price has increased about 34% from the post-Thanksgiving low until roughly mid-December. If I take out 4 anomalous years dating back to 1995, the average upswing is about 17% or about $1.30 in 2007 terms. This is important to remember if your goal is to delay purchasing any gas for January or beyond in anticipation of an early Q1 low. In the past, this rally has caused some people to make “fear” purchases of late winter gas only to regret it when prices decline. Keep triggers in place to Buy December gas at $7.50 to $7.25 or accept expiration.
Don’t expect a Christmas gift from Congress. The farm bill which includes an amendment that would close the so-called Enron loophole by boosting the CFTC’s oversight of exempt commercial markets failed in the Senate last week, probably derailing its passage before year’s end.
Our abundant coal reserves could be used for future power generation, which would free up natural gas supplies for industrial and commercial use, but coal plants already account for nearly 40% of all U.S. carbon dioxide emissions. In spite of our efforts, mastering the technology to build a CO2 sequestered coal plant is outside of our reach right now. Tampa Electric Co. has shelved a $2 B, 632 Mw coal gasification power plant that was being built to meet baseload generation needs, stating that the investment was too risky. For perspective, the construction cost per/Kw is 60% greater than a new nuclear plant. TECO already owns and operates the only working integrated gasification combined cycle (IGCC) plant, a scant 260 MW unit that has been in service since 1996 and was mostly paid for by the Energy Department's Clean Coal Technology program.
The nuclear power industry will have to step up its mining and processing operations after years in hiatus. There are 440 commercial power plants, 284 research reactors and 220 marine reactors that require uranium to fuel their operations, and last year they used nearly twice the output of all the uranium mines in the world. Mining capacity fell behind after the Cold War nuclear arms production ground to a halt. Enough uranium was stockpiled to feed existing reactors for many years, so during the 80’s and 90’s little mining occurred. Worldwide uranium demand is roughly 150 million lbs per year. More than 100 new reactors are planned worldwide: 21 in the U.S., 30 in China, 11 in Japan, 20 in India, and 42 in Russia.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (11/16) energy settlements:
December NYMEX gas closed: $8.001
Winter ’07-’08: $8.24
The NYMEX one-year strip $8.16, 2-year strip $8.34, 3-year $8.34
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.953, Last Summer: $6.79
Last winter: $7.16
Crude oil: $95.10, #2 oil $2.587
Happy Thanksgiving! Even as we survey all the craziness that surrounds us, we have so many reasons to give thanks.
Natural gas is trading in a manner very similar in action and price to last year. The only difference of concern is the net long position held by Commercial traders, usually indicative of an impending price increase, but perhaps they are just getting set for the traditional December rally. Last week’s settle above $8 was only the 2nd this year and it’s worth noting that the only expiration above $7.60 in the last 21 months was last December.
Throughout the life of the NYMEX gas contract, the January contract price has increased about 34% from the post-Thanksgiving low until roughly mid-December. If I take out 4 anomalous years dating back to 1995, the average upswing is about 17% or about $1.30 in 2007 terms. This is important to remember if your goal is to delay purchasing any gas for January or beyond in anticipation of an early Q1 low. In the past, this rally has caused some people to make “fear” purchases of late winter gas only to regret it when prices decline. Keep triggers in place to Buy December gas at $7.50 to $7.25 or accept expiration.
Don’t expect a Christmas gift from Congress. The farm bill which includes an amendment that would close the so-called Enron loophole by boosting the CFTC’s oversight of exempt commercial markets failed in the Senate last week, probably derailing its passage before year’s end.
Our abundant coal reserves could be used for future power generation, which would free up natural gas supplies for industrial and commercial use, but coal plants already account for nearly 40% of all U.S. carbon dioxide emissions. In spite of our efforts, mastering the technology to build a CO2 sequestered coal plant is outside of our reach right now. Tampa Electric Co. has shelved a $2 B, 632 Mw coal gasification power plant that was being built to meet baseload generation needs, stating that the investment was too risky. For perspective, the construction cost per/Kw is 60% greater than a new nuclear plant. TECO already owns and operates the only working integrated gasification combined cycle (IGCC) plant, a scant 260 MW unit that has been in service since 1996 and was mostly paid for by the Energy Department's Clean Coal Technology program.
The nuclear power industry will have to step up its mining and processing operations after years in hiatus. There are 440 commercial power plants, 284 research reactors and 220 marine reactors that require uranium to fuel their operations, and last year they used nearly twice the output of all the uranium mines in the world. Mining capacity fell behind after the Cold War nuclear arms production ground to a halt. Enough uranium was stockpiled to feed existing reactors for many years, so during the 80’s and 90’s little mining occurred. Worldwide uranium demand is roughly 150 million lbs per year. More than 100 new reactors are planned worldwide: 21 in the U.S., 30 in China, 11 in Japan, 20 in India, and 42 in Russia.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Monday, November 12, 2007
11-12-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (11/9) energy settlements:
December NYMEX gas closed: $7.897
Winter ’07-’08: $8.18
The NYMEX one-year strip $8.14, 2-year strip $8.33, 3-year $8.34
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.953, Last Summer: $6.79
Last winter: $7.16
Crude oil: $96.32, #2 oil $2.618
We finished the injection season with an all-time record high of 3.545 Tcf. Coincidentally, the EIA added to the good news last week by reporting that U.S. natural gas proved reserves increased 3% in 2006 to the highest level since 1976, the eighth year in a row that reserves have increased, while crude reserves declined 4 %.
The seasonal tendency for natural gas is for the December contract to rally in mid-November and then to fall about 15% from the top of that rally into a Thanksgiving holiday decline. Since this year is paralleling ’06 so closely, I am looking for the same price action and advise you to maintain your triggers to buy additional December gas in the $7.25-$7.50 range or to wait on contract expiration. The January gas contract always rallies in mid-December but I’d avoid buying any of it until expiration. Jan. ’07 expired at $5.838, almost $3 lower than the current price for Jan ‘08.
With crude oil setting new all-time highs each week, alternative fuels get plenty of press. Recognizing the futility of corn based ethanol, Shell is helping to grubstake Range Fuels in a project to make ethanol from pine tree pulp, with optimism that commercial production could come in as little as 5 years. Meanwhile, BP is hoping butanol, the longer carbon chain alcohol, can be commercially produced sooner than cellulose ethanol. Butanol can overcome some of the drawbacks of ethanol such as limited mileage, water attraction and limited blending in standard vehicles. The dilemma facing ethanol is called the E-10 wall. The properties of butanol allow you to blend it with gasoline up to 18% and to transport it through pipelines. It has 88% of the mileage of gasoline, compared to less than 70% for ethanol. Butanol is still in the early development phase.
A charge on carbon generation will most likely be part of our energy future. The calculus of credits is based on the cost per ton of CO2. At $20 to $30 a ton, the 1.9 lbs of CO2 emitted to produce a kilowatt-hour of electricity from a coal plant costs 2 to 3 cents. Wind power would be comparably price with coal at a $25/ton carbon charge. Nuclear power makes sense at a negligible carbon cost. The source of biofuels will even be considered. Ethanol carries a different carbon footprint if made from corn instead of cellulose. If you’d like to get a feel for how to calculate carbon costs, visit www.Terrapass.com or www.Carbonfund.org
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (11/9) energy settlements:
December NYMEX gas closed: $7.897
Winter ’07-’08: $8.18
The NYMEX one-year strip $8.14, 2-year strip $8.33, 3-year $8.34
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.953, Last Summer: $6.79
Last winter: $7.16
Crude oil: $96.32, #2 oil $2.618
We finished the injection season with an all-time record high of 3.545 Tcf. Coincidentally, the EIA added to the good news last week by reporting that U.S. natural gas proved reserves increased 3% in 2006 to the highest level since 1976, the eighth year in a row that reserves have increased, while crude reserves declined 4 %.
The seasonal tendency for natural gas is for the December contract to rally in mid-November and then to fall about 15% from the top of that rally into a Thanksgiving holiday decline. Since this year is paralleling ’06 so closely, I am looking for the same price action and advise you to maintain your triggers to buy additional December gas in the $7.25-$7.50 range or to wait on contract expiration. The January gas contract always rallies in mid-December but I’d avoid buying any of it until expiration. Jan. ’07 expired at $5.838, almost $3 lower than the current price for Jan ‘08.
With crude oil setting new all-time highs each week, alternative fuels get plenty of press. Recognizing the futility of corn based ethanol, Shell is helping to grubstake Range Fuels in a project to make ethanol from pine tree pulp, with optimism that commercial production could come in as little as 5 years. Meanwhile, BP is hoping butanol, the longer carbon chain alcohol, can be commercially produced sooner than cellulose ethanol. Butanol can overcome some of the drawbacks of ethanol such as limited mileage, water attraction and limited blending in standard vehicles. The dilemma facing ethanol is called the E-10 wall. The properties of butanol allow you to blend it with gasoline up to 18% and to transport it through pipelines. It has 88% of the mileage of gasoline, compared to less than 70% for ethanol. Butanol is still in the early development phase.
A charge on carbon generation will most likely be part of our energy future. The calculus of credits is based on the cost per ton of CO2. At $20 to $30 a ton, the 1.9 lbs of CO2 emitted to produce a kilowatt-hour of electricity from a coal plant costs 2 to 3 cents. Wind power would be comparably price with coal at a $25/ton carbon charge. Nuclear power makes sense at a negligible carbon cost. The source of biofuels will even be considered. Ethanol carries a different carbon footprint if made from corn instead of cellulose. If you’d like to get a feel for how to calculate carbon costs, visit www.Terrapass.com or www.Carbonfund.org
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Monday, November 5, 2007
11-5-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (11/2) energy settlements:
December NYMEX gas closed: $8.418
Winter ’07-’08: $8.67
The NYMEX one-year strip $8.48, 2-year strip $8.58, 3-year $8.54
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.953, Last Summer: $6.79
Last winter: $7.16
Crude oil: $95.93, #2 oil $2.573
For the 17th consecutive year, gas has rallied in the 4th quarter and for the 17th time it comes as a surprise to many of us. Why should gas rally when storage is at an all-time record high of 3.509 Tcf with another injection to report this week, while forecasters are calling for a warmer than normal winter. Remember last year when storage was at an all-time high with a prediction for a warm winter when gas soared to $9.05 from its Q3 low of an Amaranth aided $4.07, a 122% increase before expiring at $8.31? Last week’s high of $8.66 would only be a 66% increase over our Q3 low of $5.23. Throughout the life of the NYMEX, the average rally in the 4th quarter is 109% over the 3rd quarter low. I don’t believe we’ll make the average this year, but more room to the upside should be expected during the traditional run up in November and December. Last week’s close was only the 16th time in the past 90 weeks that gas has settled above $8.
Keep your triggers in place to buy December gas in the $7.25 to $7.50 range or wait until expiration. Last year, January gas expired with a “5” in front of it and I’d discourage anyone from buying it now.
As crude oil rallied above $96/Bbl last week, everyone seemed to have their own Armageddon story. In the past two weeks, the CEO’s of BP, Exxon and Total have explained the great difficulties their industry will face in attempting to reach the 100 million barrel per day production target that many predict the world will consume within the next decade. In fact, Total’s boss flatly said it can’t be attained, noting that we’ve got the reserves but it’s the deliverability that’s the sticking point.
One culprit is national oil companies. They don’t develop reserves with the efficiency of the for-profit industry. Venezuela is a classic example, needing approximately 191 drilling rigs to maintain existing production while only 73 are currently in operation.
Meanwhile, China and India continue to subsidize diesel and gasoline costs. India’s subsidies will cost its government $12.8 B this year. China raised diesel and gasoline prices by 10% to consumers last week but still sells it for less than half the market rate, and diesel is being rationed as domestic refining can’t meet demand. Artificially cheap fuel encourages waste and pollution while creating unfair subsidies for manufactured goods, to say nothing about the illusory financial statements it creates for Chinese and Indian companies whose stocks are soaring on their markets. Both nations say they’d like to eliminate the subsidies some day, but it’s hard to get off that roller coaster at this speed.
In the middle east; I know it’s not about the oil but the Iraqi government pleased Washington last week by cancelling a contract that Russia’s Lukoil held to develop the giant Qurna oil field in southern Iraq, opening the door for US firms to participate. Putin has countered by threatening to rescind a $13 B debt forgiveness deal arranged for Iraq in 2004. For comparison purposes, the US spends that much every two months in Iraq.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (11/2) energy settlements:
December NYMEX gas closed: $8.418
Winter ’07-’08: $8.67
The NYMEX one-year strip $8.48, 2-year strip $8.58, 3-year $8.54
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.953, Last Summer: $6.79
Last winter: $7.16
Crude oil: $95.93, #2 oil $2.573
For the 17th consecutive year, gas has rallied in the 4th quarter and for the 17th time it comes as a surprise to many of us. Why should gas rally when storage is at an all-time record high of 3.509 Tcf with another injection to report this week, while forecasters are calling for a warmer than normal winter. Remember last year when storage was at an all-time high with a prediction for a warm winter when gas soared to $9.05 from its Q3 low of an Amaranth aided $4.07, a 122% increase before expiring at $8.31? Last week’s high of $8.66 would only be a 66% increase over our Q3 low of $5.23. Throughout the life of the NYMEX, the average rally in the 4th quarter is 109% over the 3rd quarter low. I don’t believe we’ll make the average this year, but more room to the upside should be expected during the traditional run up in November and December. Last week’s close was only the 16th time in the past 90 weeks that gas has settled above $8.
Keep your triggers in place to buy December gas in the $7.25 to $7.50 range or wait until expiration. Last year, January gas expired with a “5” in front of it and I’d discourage anyone from buying it now.
As crude oil rallied above $96/Bbl last week, everyone seemed to have their own Armageddon story. In the past two weeks, the CEO’s of BP, Exxon and Total have explained the great difficulties their industry will face in attempting to reach the 100 million barrel per day production target that many predict the world will consume within the next decade. In fact, Total’s boss flatly said it can’t be attained, noting that we’ve got the reserves but it’s the deliverability that’s the sticking point.
One culprit is national oil companies. They don’t develop reserves with the efficiency of the for-profit industry. Venezuela is a classic example, needing approximately 191 drilling rigs to maintain existing production while only 73 are currently in operation.
Meanwhile, China and India continue to subsidize diesel and gasoline costs. India’s subsidies will cost its government $12.8 B this year. China raised diesel and gasoline prices by 10% to consumers last week but still sells it for less than half the market rate, and diesel is being rationed as domestic refining can’t meet demand. Artificially cheap fuel encourages waste and pollution while creating unfair subsidies for manufactured goods, to say nothing about the illusory financial statements it creates for Chinese and Indian companies whose stocks are soaring on their markets. Both nations say they’d like to eliminate the subsidies some day, but it’s hard to get off that roller coaster at this speed.
In the middle east; I know it’s not about the oil but the Iraqi government pleased Washington last week by cancelling a contract that Russia’s Lukoil held to develop the giant Qurna oil field in southern Iraq, opening the door for US firms to participate. Putin has countered by threatening to rescind a $13 B debt forgiveness deal arranged for Iraq in 2004. For comparison purposes, the US spends that much every two months in Iraq.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
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