12-17-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (12/14) energy settlements:
Natural Gas: Jan '08-$7.025
Jan-Mar '08-$7.12
Summer '08-$7.39
One Year Strip-$7.46

Last week's close was very weak with the Jan. contract settling below a trendline that has provided support for the life of that contract. Without a rally this week, Jan seems destined to trade lower. Judging by the enormous increase in open interests, there is a very large bear spread play going on with substantial long positions in summer '08 gas and accompanying shorts in Jan-Mar '08 which should help to drive down the prompt month price.
This December rally was the smallest percentage run up in the history of the NYMEX at only 8%. Two previous diminutive rallies were in '97 and '04 at 11%.

If the Q1 percentage decline from the Q4 high matches the average of the past 5 years, we'll have a low that is very close to the one we had last year. While you need to have your triggers in place to buy some future gas, a bottom near the end of January looks more likely from a technical perspective than it does in the next 10 days, but stay ready since no one will "ring the bell" to tell us when the bottom has arrived.

Please feel free to call me to discuss any questions you may have about your specific energy plan.

12-10-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (12/7) energy settlements:
January NYMEX gas closed: $7.155
Winter (Jan-March ‘08): $7.22
The NYMEX one-year strip $7.54, 2-year strip $7.90, 3-year $8.03
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.86, Last Summer: $6.79
Last winter: $7.16
Crude oil: $88.28, #2 oil $2.504

The historical tendency for natural gas this week is for prices to increase. With warmer than normal weather and storage so full that many storage holders are already beginning to baseload it into their supplies to make sure they get it out, it’s hard to paint a bullish scenario. If it does rally, it will be because commercial end users are buying from large speculators who are building an impressive short position. Commercial end users owned 354,480 contracts at the end of November but currently own 402,177. Why the utilities, etc want to buy now is a mystery to me and because we don’t have transparency into OTC markets, I can’t be sure that they haven’t placed offsetting bets on other exchanges, but since the end of October NYMEX open interest has increased from 741,551 contracts to 841,926 while prices have declined more than a dollar, which means that there are more sellers in the market than there are buyers, and I want you to hold off on being a buyer yourself until we see lower strip prices. Current prices still carry too much premium to the 2 and 3 year averages.

Looking ahead, Indonesia’s state-owned oil company has decided to reduce its annual supply of LNG to Japan, the world's biggest LNG importer, from the current 12 million metric tons to 2-3 million tons, and reduce overall LNG exports from 15 million tons down to 5, as its production goes into greater decline. The reduction will deal a serious blow to Japan’s long-term energy security at a time when global LNG demand is surging.

In a nearly related story, Panama will build two new three-chamber locks at the Atlantic and Pacific ends of the canal that are large enough to allow the passage of LNG tankers as large as 150,000 cu m. The $5.2-billion project will be completed by 2014. In its current configuration, the canal can accommodate only the 17 LNG tankers ships that are 100,000 cu m or smaller. The enlargement could open up new trading options for Trinidad, Chile, Japan, Korea, Qatar …………..the world.


Please feel free to call me to discuss any questions you may have about your specific energy plan.

12-3-07 Energy Update

WEEKLY ENERGY MARKET UPDATE:

Friday (11/30) energy settlements:
January NYMEX gas closed: $7.302
Winter ’07-’08: $7.33
The NYMEX one-year strip $7.55, 2-year strip $7.86, 3-year $7.97
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.86, Last Summer: $6.79
Last winter: $7.16
Crude oil: $88.71, #2 oil $2.515

November weather was mild with minimal storage withdrawals as the EIA reported gas storage at a record 3.528 Tcf as of 11/23. That is 106 Bcf higher than last year at this time and 301 above the 5-year average. Gas consumption rarely reached 80 Bcfgd during the month.

Domestic LNG receipts are negligible as Europe has begun to take all Atlantic Basin shipments. This is normal procedure for wintertime. The US sets the floor for global LNG prices since we are the only country in the world that generally imports LNG out of opportunity rather than necessity thanks to the best gas storage system in the world.

With such bearish fundamentals, one would expect prices to fall further now, but the tendency during December is for gas prices to run up mid month and then settle lower by month’s end. This has occurred for 17 consecutive years so I strongly advise that you do not buy gas during the mid-month rally.

Last year’s January contract settlement nearly coincided with the lowest price for the 2007 strip, so in anticipation of another potential end-of-year low it would be prudent get all “powers that be” in regards to gas purchasing and agree on where you want to set your triggers to buy longer term gas. Commodity prices tend to “return to the mean price” during calm times and the average monthly settlement price for the past 2 years is $6.86. Advisable targets for setting triggers to purchase the 2008 strip range from $7.25 to $7.00. And no one will “ring the bell” to tell you when the bottom is in for gas.

European consumers will pay up to a 17% increase for gas provided by Gazprom in 2008 as it announced that western European prices would rise to $300-$350 per thousand cubic meters. At 35.1 cu. feet to the cu. meter, we’re talking about up to $10/Dt NYMEX equivalent for gas.

Dubai is set to launch an LNG futures exchange. This would allow buyers and sellers to establish long-term contractual prices required to secure investments in production and receipt facilities, as well as a vehicle to unwind long term fixed priced deals. The new contract could also give the world's top LNG suppliers, as well as the Goldman Sachs types, a single pressure point to manipulate the global price of a major energy resource.

Production from Mexico’s two biggest Gulf of Mexico oilfields has decline over 15% in the past year alone and shows signs of irreversible depletion. Poorly managed nationalized oil companies in Mexico and throughout South America will cause continued pressure on oil prices in ’08 as New World oil production lags behind its potential. Venezuelan production, which is currently 2.5 MM bbl/d, could have been as much as 6 MM bbl/d if it had remained in the hands of the majors.

Please feel free to call me to discuss any questions you may have about your specific energy plan.