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.