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3 Nov 18 2010 @ 10:44am by Matt Smith in Capital Markets, Economy, Natural Gas, risk management

Harry Potter and the Energy Sector

What with all the Harry Potter excitement going round at the moment, I figured this would be topical this week…..various aspects of the industrial sector are being pushed and pulled by the forces of good and evil; so let’s take a look at three examples of the battles that are raging, through the medium of our Hogwartian hero and his friends / foes.

First up is b-b-b-b-bad to the bone, the villain that is Voldemort: aka US natural gas industrial demand. As natural gas prices continue to struggle to break higher from the $4 level, it is clear that there is inherent weakness in the demand side of the equation. This becomes clear when we take a look at the chart for industrial demand. This piece of the pie makes up approximately 27% of total US consumption of natural gas, and yet despite a so-called recovering economy, industrial demand continues to struggle. In fact, it has now fallen below the level of the last five-years (= b-b-b-b-bad). As referenced in last week’s post, the Ceridian-UCLA Pulse of Commerce Index shows diesel usage is pointing to a stalling in industrial production; this chart only serves to reaffirm this fact.

‘There is no good and evil. There is only power, and those too weak to seek it’ – Voldemort

Natural Gas Industrial Demand (source: Bentek)

Next up, the ‘are-they-good-are-they-bad’ candidate…Severus Snape represents US industrial production. From June 2009 (the same month that saw the end of  ‘the great recession’) to August of this year, the sector saw fourteen sequential monthly improvements, only to experience contraction in September, then flatline last month (although the manufacturing / auto part was strong). On a year-over-year basis, it is still up 5.3%, but has slipped progressively lower over the last four months. Even more eerily, as an absolute number it is still 7.3% below pre-recessionary levels (hark another previous blog post about this). But just as we do with Snape, we hope for the best from them, but expect the worst.

‘Dark and difficult times lie ahead’ – Dumbledore

Finally, we make way for our wizardous warrior, Harry Potter (= Chinese industrial production). In a word, China’s industrial sector is heroic. In the past decade, industrial production each month in China has shown an average of 14% annual growth. As the chart illustrates, growth continues apace as the engine room of the global economy continues its sorcery. China’s appetite for energy remains insatiable, with a current diesel shortage, record crude imports seen in September, and a roaring coal market; China is leading the battle against evil (of a second global slowdown), with a haste that is almost indecent.

…dawn seemed to follow midnight with indecent haste…

Like in the Harry Potter films, the various aspects of the global industrial sector leave the viewer to experience a range of emotions. As ever, it appears that China is charmed, while the US is somewhat cursed by a spell of indifference. Yet, also like in the Harry Potter films, we can only hope that good will prevail and that we will see a happy ending. While in the meantime, we remain spellbound by all the drama.

3 Comments on this post:

  1. Statts says:

    so should we refer to NG industrial demand as “consumption that shall not be named”?

  2. Leslie Beyer says:

    love this. as energy/natural gas news is part of my daily required reading for clients, I must say that this piece was a highlight.

  3. Matt Smith says:

    Thank you, Leslie, is good to know! When this piece was originally published as a post on Fuelfix, I received a barrage of abuse for being a nerd, so I appreciate the positive comments!

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