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What is Up with Natural Gas? |
HenryTo
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 Posted: Tue Dec 26, 2006 11:00 am Post subject: What is Up with Natural Gas? |
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Since our December 17th commentary was published ("What is Up with Natural Gas?"), natural gas prices (basis the January 2007 contract) are already down by more than $1/MMBtu.
The contract is way oversold but a solid bottom is still nowhere in sight. For now, I prefer to sit and wait on the sidelines before buying anything natural-gas related (regulated pipelines notwithstanding). Watch out for Canadian producers especially since I believe the Canadian dollar is still way overvalued.
Best,
Henry
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rffrydr
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| Posted: Mon Apr 12, 2010 7:56 pm Post subject: |
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More Madman stirring the coals of this, his long smoldering trade:
Conoco's Hidden Assets
By Jim Cramer
RealMoney Columnist
4/12/2010 5:16 PM EDT
| Quote: | Conoco (COP - commentary - Trade Now) has got a huge bunch of assets that nobody thinks about. The stock has traded as if it is a natural gas company with a big refining operation -- and that's not been enough.
Until now. It looks like COP has realized it needs to do more to monetize superfluous assets. Witness the $4 billion purchase of its Syncrude stake by Sinopec (SHI - commentary - Trade Now). Did you know it was worth $4 billion? Did you know COP even had it?
Of course, it is possible that people are buying it off of still ONE MORE bottom call on natural gas, something I have given up on, as coal is ascendant (stocks moving again!). If that's the case, there are ton of stocks that are better: Devon (DVN - commentary - Trade Now), Range (RRC - commentary - Trade Now), Ultra (UPL - commentary - Trade Now), EQT (EQT - commentary - Trade Now).
At this point, I am NOT a buyer of COP. It's had a very big run. But the more value that is unlocked, the more the stock will go higher, simply as a function of having an awful lot of value no one knows about. Oh, and for the record, I like BP (BP - commentary - Trade Now) -- an Action Alerts Plus name -- better than all of the other oil names, because of that 5.65% yield with room for a dividend INCREASE. Last year, the worry was about a cut!
Random musings: The government has spoken, and it didn't crack down on coal after the disaster. If you can extract coal without punishment for safety and with lots of slag that can't be stored well, while you hold back natural gas with water concerns that have been barely realized, then you know the future...
Amazon (AMZN - commentary - Trade Now), meanwhile, is a coiled spring as people settle into the notion that the iPad isn't going to kill it. |
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rffrydr
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| Posted: Wed Apr 07, 2010 6:05 pm Post subject: |
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It's "natural" premium:
| Quote: | Glenn Williams
Natural Gas - Alternate Perspective
4/7/2010 3:00 PM EDT
Many argue the dollar-per-Btu spread between natural gas and fuel oil huge and growing. Some argue that the price for natural gas is too low and should correlate to fuel oil.
From the perspective of the power industry, the price of natural gas is too high. Currently, on a dollar-per-Btu basis, natural gas is 2 times coal and 2 times nuclear (source: EIA). Natural gas is the power industry's most expensive fuel. (The power industry does not use much fuel oil.)
If natural gas prices increase to $8 or $12, wholesale power prices would double or triple. Sustained, it could cripple the economy.
Compared with coal and nuclear, current natural gas prices are reasonable. It is fuel oil prices that are unreasonable and uncorrelated. Just an alternative view. |
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rffrydr
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| Posted: Thu Apr 01, 2010 8:06 am Post subject: |
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Ask Pickens about that equation.
It's obviously an holistic problem but here's an item: China is our aluminum smelter. After factoring in shipping back and forth across the pacific. If these gas prices could be locked in for decade we could have our own smelters again. Think of it, heavy industry right here in our own backyard. Heavy industry...the new clean energy???
Oil-based transportation costs taken out of the equation and largely automated processes filled out with low-wage imputs and we'd be shopping local again--on an industrial scale. And nothing burns gas like smelting.
Not the first idea that comes to mind but one aluminum smelter is gonna cover all of Picken's trucks and more. Freeing up bulk shipping for food--and dirty coal.
Also a great source of hydrogen..... Anyway, "fracking" the best thing to come out of "07-08."
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HenryTo
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| Posted: Thu Apr 01, 2010 7:34 am Post subject: |
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Morningstar's outlook on the energy sector, including their take on the natural gas vs. oil argument:
http://news.morningstar.com/articlenet/article.aspx?id=330148#page=0&part=1
| Quote: | Let's first challenge the idea that gas will be both abundant and cheap during the next decade in North America. On the abundance side, we won't bother to argue with the assertion that natural gas shale resource potential is huge in North America. Instead, we'd suggest that some of the factors that will contribute to converting resource potential into gas for sale could prove more limiting.
First, we see potential shortages of midstream infrastructure where it will be needed most from a volume-growth standpoint. Although we may have excess pipe and processing in the Rockies and North Texas, areas likely to experience the most explosive growth during the next decade--the Haynesville/Bossier Shale, Marcellus Shale, Horn River Basin, and Eagle Ford Shale--face greater midstream hurdles. Cheap funding for both midstream and upstream development could also occasionally prove elusive, especially if investor enthusiasm for gas wanes or rates rise.
Water, a key component of the technology unlocking shales, could also be an issue. Each horizontal shale well can require between 1 million and 8 million gallons of water in the hydraulic fracturing process, most of which is absorbed. Water returning to the surface needs treating and disposal/recycling, which requires more above-ground water investment.
.....
Considering North American natural gas production currently sits at 78 billion cubic feet per day, spread fairly evenly between legacy commercial- and home-heating, industrial, and electricity-generation markets, how big an opportunity could new market penetration present? Well, the U.S. and Canada consume 79 billion cubic feet per day equivalent in transportation, where gas has almost no share. And the electric-power-generation market in the U.S. and Canada uses about 110 billion cubic feet per day equivalent (of which gas already owns about 20% to coal's roughly 45%). So it appears that cheap and abundant gas could have some running room, and significant volume growth could be absorbed in time.
But we all know that oil-based refined products are incredibly entrenched in the transportation supply chain, and it's a superior transportation fuel in many ways. So is that really a market gas could penetrate? Instead of tackling this question in the broader auto fleet, where we'll concede much time would likely be required, we'd point to smaller transportation markets with largely self-contained supply chains that could be more quickly overrun by natural gas.
First, consider freight trucks, which need about 13 billion cubic feet per day equivalent in the U.S. and Canada. Freight trucks are likely the most cost-conscious part of the transportation sector, and most likely to take advantage of significant, persistent fuel-price arbitrage. Second, consider fleet vehicles (cabs, busses, municipal fleets, and so on), which use about 3 billion cubic feet per day. Finally, consider rail, air, military, and international shipping, which consume about 16 billion cubic feet equivalent in fuel in the U.S. and Canada. |
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HenryTo
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| Posted: Wed Mar 31, 2010 7:55 pm Post subject: |
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| UNG continues to plummet to new lows - declining 2.7% today (in the midst of a rally in crude oil) to end at 6.91. |
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rffrydr
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| Posted: Thu Mar 25, 2010 9:48 am Post subject: |
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Another Misguided Attack on Nat Gas
By Jim Cramer
RealMoney Columnist
3/24/2010 2:19 PM EDT
| Quote: |
I have seen the future for natural gas in this country, and the future is a congressman from the Southern Tier of New York, Maurice Hinchey, who, if he gets his way, would be able to stop all drilling for natural gas in his area, despite its abundance.
In what I regard as a stunning rebuke of an industry that is trying to make a profit and clean the air and make us energy-independent, Hinchey has launched a multi-pronged attack on the type of drilling that is needed to get at the natural gas. He disingenuously said on my show last night that his restrictions and studies wouldn't do much to hurt the industry. That's his conjecture. But the testing and restrictions and rules would make drilling not worth the effort. He is intent on blocking this drilling even as he says he isn't, because he must know that the drillers can't handle this level of restriction and make a profit drilling in his state.
To wit: He is calling for "a prohibition on the use of toxic chemicals in all fracturing fluids in order to prevent groundwater and surface water contamination." "Fracking" does involve chemicals that are toxic. You can't drill without them. As if coal doesn't produce anything toxic when it is produced -- remember the explosion of Tennessee coal sludge that wrecked a sizable portion of that state. That is no matter to Hinchey, but his anti-natural-gas arguments are per se pro-coal, because solar, wind and nuclear can't replace coal economically.
He is also asking for much information that is readily available about the chemicals used, and for a series of open-ended studies about the damages that fractured drilling causes, despite the repeated studies that have already showed minimal impacts in the 40 years that this kind of drilling has been used.
He puts it pretty starkly in a letter to the Department of Environmental Conservation in New York, a state agency that has been positive on the drilling method: "While the economic benefits of drilling are potentially great, the potentially disastrous economic and public health consequences of failing to protect our water supplies would be exponentially greater."
Hinchey's fight has helped bring about a potentially disastrous turn in this kind of drilling, as the EPA, on March 18, is moving forward with a congressionally requested investigation into fracturing's harmful effects on drinking water. The congressional request, coming from the chairman of the Energy and Commerce Committee, Henry Waxman, and Subcommittee Chairman Edward Markey, includes letters to Schlumberger (SLB - commentary - Trade Now), Halliburton (HAL - commentary - Trade Now), BJ Services (BJS - commentary - Trade Now) and Superior Well Services (SWSI - commentary - Trade Now).
It is easy to dismiss this meddling. One industry lobbying group is welcoming the investigation, because it believes that drilling for nat gas, while it will always have its problems, is so important for the country's energy independence, cleaner air and employment that the EPA won't matter.
Bunch of dreamers.
Simply put, there is no one in government of import on the other side of the trade who seeks balance. There is no one who has not been a recipient of natural gas lobbying money, at least not that I can find, who is willing to say, "Yes, there are problems with it, but the problems are dwarfed by the incredibly harmful effects of using coal, the only real alternative." Coal can't be used as a fuel for cars or trucks, and even if you develop battery-powered cars en masse, they would be plugged into a coal-based system every night, and that would make coal use overwhelming in this country.
Well, I shouldn't say "nobody," because the Sierra Club says that the trade-off is obvious, particularly because of the damage done in mountain-top mining, the inability to store the coal sludge effectively, the huge amount of pollutants being spewed by 40-year-old plants and the 20,000 deaths that coal generates every year by its count.
All of this matters because if nat gas is stopped and the price stays down here because of no new demand, because the utilities will regard it as unreliable, because it can't be drilled for in abundance, these stocks, Devon Energy (DVN - commentary - Trade Now), Apache (APA - commentary - Trade Now), Ultra Petroleum (UPL - commentary - Trade Now), Range Resources (RRC - commentary - Trade Now), EQT (EQT - commentary - Trade Now) and Chesapeake (CHK - commentary - Trade Now) -- especially Chesapeake -- are just shorts, plain shorts. They are not going to be able to handle the EPA's potential shutdown of their fracking operations. This EPA is powerful, and it doesn't regard its job to be the consideration the costs and benefits of the use of natural gas.
It's a dicey situation. It is so dicey that you have to wonder why Exxon Mobil (XOM - commentary - Trade Now), which doesn't see the use of natural gas for cars and trucks - yes, it stated that -- doesn't walk away from buying XTO Energy (XTO - commentary - Trade Now). That's what's to watch. And if Congressman Hinchey gets his way, Exxon will walk away tomorrow. |
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rffrydr
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| Posted: Wed Mar 17, 2010 5:55 pm Post subject: |
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Interesting that OPEC has no cartel on this stuff and half-a-dozen major liquidization sites just coming into their own. What if Gazprom's link actually became true? Wouldn't that be something 
Short Gazprom is the best I can get out of this trade.
Recent Economist feature on NatGas:
http://www.economist.com/business-finance/displaystory.cfm?story_id=15661889
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HenryTo
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| Posted: Thu Mar 11, 2010 11:55 am Post subject: |
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Morningstar on the BP-DVN deal. DVN definitely worth a second look especially in natural gas prices continue to decline in the short-run and capacity is subsequently taken off the market.
| Quote: | | The planned $7.0 billion purchase of Devon Energy's DVN international and offshore assets gives BP BP an important entry into deep-water Brazil and enhances its position in the U.S. deep-water Gulf of Mexico and Azerbaijan oil-producing regions. We think this asset purchase makes strategic sense for BP, which we see as a more natural buyer than other major oil companies. In Brazil, the deal will give BP interests in eight blocks in the Campos and Camamu-Almada basins as well as two onshore leases. The acquisition of Devon's interests in 240 Gulf of Mexico leases will secure BP's position as the dominant oil and gas producer in the Gulf. These assets also include four producing oil fields--Zia, Magnolia, Merganser, and Nansen--and prospects to explore for Paleogene-age oil prospects. Also, BP will now own 100% of its recent Kaskida discovery. In Azerbaijan, BP is boosting its interest in the ACG development to 39.77% by acquiring Devon's 5.63% stake. Also, BP will sell Devon a 50% interest in BP's Kirby oil sands interests in Alberta for $500 million. The two firms agreed to a 50/50 joint venture to develop this interest with Devon as operator. Devon will fund $150 million of project costs on BP's behalf. BP has ample liquidity to fund this purchase, with a year-end cash balance of more than $8 billion and robust borrowing capacity. These high-potential exploration blocks could help the firm achieved its targeted 1%-2% long-term production growth. BP has enough projects to support this goal near-term, but these exploration blocks, if successful, could support longer-term objectives. Given its previous $1.3 billion Gulf of Mexico sale and Thursday's BP deal, Devon is tracking slightly better than expected on its asset sales goals announced last year (which sought $4.5 billion-$7.5 billion in aftertax proceeds). With just over $7 billion in short- and long-term debt at year-end 2009, Devon will be well positioned to further consolidate the North American natural gas industry, should gas prices fall, or accelerate drilling within its portfolio, should prices rise. |
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rffrydr
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| Posted: Thu Mar 11, 2010 9:19 am Post subject: |
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Steve Chu mentioned nat gas in passing last week and the fires ignited. Seemed as if this clean and plentiful product of the US was getting passed by. The Madman is on it:
Play for Big Upside in the Nat Gas Space
By Jim Cramer
RealMoney Columnist
3/11/2010 7:22 AM EST
| Quote: | Upside. That's why I like these natural gas players so much.
I have been saying that Devon's (DVN - commentary - Trade Now) going to get a good price for its international properties, but the $7 billion price tag that BP (BP - commentary - Trade Now) paid is 40% more than I thought possible. It is a monster deal, and it allows Devon to develop all of its big U.S. properties without breaking the bank or needing more equity a la EQT (EQT - commentary - Trade Now) ... although I badly want to be in that secondary.
Devon's either a huge believer that President Obama will see the light on natural gas or that he is a one-termer and the next president will embrace nat gas as a cleaner fuel than the president's "clean coal" choice. I had worried that Devon was adopting a bet-the-farm strategy on this U.S. gambit. But now that it got about a quarter of its market cap in cash from BP, the risky nature of the domestic plan is now off the table.
The group's moving up despite the resistance of the president and despite the decline in the nat gas futures, especially relative to the price of oil.
This deal will only fan the flames.
Two takeaways: Anadarko's (APC - commentary - Trade Now) domestic and foreign properties are probably worth far more than we think after this new price tag, and the EQT deal is going to be so sweet that you should try to get in on this $44 pricing this morning. Can you imagine how hot this area is that the company can announce 12.5 million shares for sale yesterday and price it this morning? Even if it is down 3 from the high the other day, this is a fantastic piece of Marcellus Shale merchandise that you need to fight to get in on as soon as you read this.
If it hasn't been lapped up already by the big institutions that are so eager to cash in on the domestic game-changer, that is. |
I just can't get behind the gas trade. The long shadow of Enron looms over the financial community--where it matters for us. I've seen gas fail in autos. Ethanol has been burned. Steel, more than weather, flips the switch in this trade and on that I'm a permabear.
There may be some indirect plays out there for my type. We'll see.[/quote]
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rffrydr
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| Posted: Wed Mar 10, 2010 6:24 pm Post subject: |
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Jim Cramer
Taking Heat on Nat Gas/APA
3/10/2010 6:01 PM EST
I have been taking some heat for my endless reiteration about natural gas -- but we are making great money. Today, Apache's Steve Farris spoke at CERA, and he said that the shale discoveries are the greatest game-changers he has ever seen. He's talking about saving tens of billions of dollars in oil bills, dramatic decline in emissions and a huge balance-of-power shift. If only our president believed...
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rffrydr
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| Posted: Tue Mar 09, 2010 8:51 am Post subject: |
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The Madman on the changing role of gas in the context of the changing role of emerging market hard asset investment:
My Money is on Natural Gas
By Jim Cramer
RealMoney Columnist
3/8/2010 11:36 AM EST
We are getting the usual yawns today about Royal Dutch Shell (RDS.A - commentary - Trade Now) and PetroChina (PTR - commentary - Trade Now) buying Australian coal-seam gas producer, Arrow Energy. The shell-out, USD3 billion, though is still one more sign that everyone but the politicians recognizes that natural gas is the bridge fuel to the future. This acquisition is emblematic of the Total (TOT - commentary - Trade Now), BP (BP - commentary - Trade Now) and Mitsui (MITSY - commentary - Trade Now) acquisitions in the United States. I think they are backlashes to the problems of developing large projects in Russia, the Middle East, Nigeria or Venezuela, to name four hot spots where things don't go according to plan.
It's come to be expected that the Russians will chisel away at the agreements they have made with western oil companies, making the investments untenable. These multi-billion dollar deals now look like hold-ups, although the companies themselves never like to admit it.
The Middle East is just about the state-owned companies, themselves. When you have concessions, though, as we recently saw in Iraq, they remain up in the air and not all that lucrative. The outcome of the election yesterday will be pivotal, however, as some of the parties favor redoing the contracts, something that Schlumberger (SLB - commentary - Trade Now) talked about on its quarterly conference call.
We will never forget the fiasco of Chavez pulling the plug on the massive investments by Exxon (XOM - commentary - Trade Now) and Conoco Phillips (COP - commentary - Trade Now). Religious strife, meanwhile, is an ongoing issue in Nigeria; the oil companies are desperate for oil, but, from what I can tell, usually only ever a week or two away from expropriation or destruction.
Against that background are Australia, Canada and the United States. Of these, the most problematic might be the United States. Australia can ship to China. The Canadian government has sanctioned sending natural gas overseas because of the surfeit in the United States.
In our country, though, which has the biggest reserves, there is no governmental incentive to close the dirtiest coal plants to switch over to natural gas, in part because our President is a huge believer in bringing in foreign companies to develop clean coal. What's more, he wants to make the country self-sufficient through wind, solar and battery-powered cars, even though the power industry sees that the electric cars are a boon to coal, as 50% of the power industry is based on coal, and you have to plug cars into the electric grid, causing more and more coal to be burned. Electric cars are basically a subsidy to the coal industry that President Obama favors, despite heavy opposition from the Sierra Club, which favors natural gas, because coal use kills about 20,000 people annually and has a far greater pollution component.
No matter. The oil and gas companies are betting against Obama, believing he is a one termer and that he will be out. They think someone who favors energy independence will come in, making it so that the acquisitions, at least in our country, make economic sense. We saw that on Friday in a little-noticed deal in which XCEL (XEL - commentary - Trade Now) agreed to switch from coal to natural gas for its Colorado operations. These are the kinds of deal behind the large international investment in natural gas fields worldwide.
The exceptional news here is that Royal Dutch and PetroChina have been noticeably absent from the American acquisition scene. The Chinese have kept a low profile ever since they were shut down in the Unocal transaction last decade. Royal Dutch has been mired in what now looks to be uneconomic projects in Canada. U.S. shale gas is much cheaper and in the right places.
I continue to believe that the winners here will ultimately be Range Resources (RRC - commentary - Trade Now), Devon (DVN - commentary - Trade Now), Apache (APA - commentary - Trade Now), Anadarko (APC - commentary - Trade Now), Encana (ECA - commentary - Trade Now), Ultra Petrol (ULTR - commentary - Trade Now) and EQT (EQT - commentary - Trade Now), although I am now adding Noble Energy (NBL - commentary - Trade Now) to the mix because of its key role in making Friday's XCEL deal happen.
This group is the future, and the opposition from Obama will not be stopped. At least, that's what the big money says. I am going with the big money.
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HenryTo
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| Posted: Thu Mar 04, 2010 11:12 am Post subject: |
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FYI - natural gas down again today. Naturally, UNG is again taking a beating.
| Quote: | | NEW YORK (MarketWatch) -- Natural gas in storage declined by 116 billion cubic feet in the week ended Feb. 26, the Energy Information Administration said Thursday. A Platts survey of analysts expected a larger withdrawal of 128 to 132 billion cubic feet. Down ahead of the storage data, natural gas for April delivery fell further in its wake, with the contract off 12 cents, or 2.5%, to $4.640 per million British thermal units. |
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HenryTo
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rffrydr
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rffrydr
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