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Posts Tagged ‘UK natural gas’

0 May 14 2010 @ 9:26am by Matt Smith in Capital Markets, Crude Oil, Economy, UK natural gas

Burrito bites

It seems to have been a week for testing boundaries in commodityland(tm). Natural gas has tried to break out to the upside of the range it’s been bouncing around in for the last six weeks or so, while crude has sliced through a vein of key support (= 200-day moving average), heralding potential further bloodletting in the near-term. No sooner has the dust settled on the Greek debacle then murmurs about problems in Portugal arise; this issue isn’t going to disappear quickly is it? The movement in crude is no doubt exacerbated by a stronger US dollar weaker euro and pound as they both get pounded. Equities started the week showing strength (amazing what a $1 trillion bailout does to brighten the mood), but are fading this move as realization dawns that bailouts facilitate liquidity, but do not fix the problem. All the while, the bond markets are rallying, indicating the choppiness in this current market storm (never forget: Equities and Bonds = Pinky and the Brain). Wow. That was all very serious wasn’t it? Let’s lighten the mood and learn some lessons as we head into the weekend, forks at the ready: 

No room at the Inn for Cushing crude supplies. 

–The world’s strangest vending machines

–A link to links of links on the latest about the Gulf of Mexico oil spill

–Think UK natural gas is wacky? Don’t fret, so does everybody else

–A closer look at the 1,000 point plunge on the Dow last week. 

The Evolution of privacy on Facebook.  

–Why the US could go the same way as Greece, and why it won’t

China’s coal bubble, and how it will deflate the US efforts for ‘clean coal’. 

Rock-paper-scissors-lizard-Spock

–I don’t buy into this, but hey – as summer nears, gasoline prices are set to go down

–If you missed it, here’s a link to a webinar Summit participated in this week on Carbon Management – a really, really good intro to the topic. 

–Re the picture top right – the art of manipulation.

–Concord, MA may be the first US town to ban bottled water.

Seen leaving Concord, MA.

The Burnt Burrito Award of the week goes to the Euro, as it plunges, and plunges. A rolling stone gathers no moss, but it appears a falling euro is gathering momentum. All a bit worrying for the global economy. 

The Burrito Deluxe Award of the week goes to gold, as it rallies to a record level as a hedge against, ooh,  pretty much everything it would seem.   

Burrito Quote of the week – ‘For every one of our failures, we had spreadsheets that looked awesome.’ — Intuit founder Scott Cook. (HT: MM). 

Have a splendid weekend!  

0 May 6 2010 @ 10:57am by Matt Smith in Crude Oil, Global Energy, Natural Gas, UK natural gas

10 simple points about energy markets

I am a huge proponent of keeping things simple (hence the use of cartoons, films, the Hoff, etc), so in these times when information whizzes past our eyes every minute of every hour of every day, I thought it useful to get back to basics and outline 10 simple points about energy markets which add some background to the news at the fore – it’s easy to forget ’em:

Opec was a different animal back in 1986....

 

1) So what exactly is the big deal about Opec again? It is this: in 2009, the twelve-country cartel produced 39% of world’s oil (42% in the prior year, before they curtailed production in 2009 to support prices). Their influence has grown in recent times, and is likely to continue, given lackluster production growth in OECD countries. Opec has come a long way; back in 1986, Opec only made up 22% of the world’s oil production. 

2) Is the US increasing or reducing greenhouse gas emissions? Data just released by the EIA show US carbon dioxide emissions fell by 7% in 2009. But was this due to lower economic growth? In a word, yep. The ‘exceptional’ drop was more to do with lower energy demand from lower output (aka ‘the great recession’), added to a cleaner mix of fuels in the economy, with a sprinkling of improving energy efficiency.   

3) Why does storage inspire such concern in the UK natural gas market? – simply because there is so little. Due to a maximum daily withdrawal rate (like at an ATM), there are 80-ish days of supply in storage. But if there were no technical constraints on withdrawals, there are only approximately 21 days of supply (or as little as 9 days at the height of demand). This compares to the US which has approximately 44 days (without constraint on withdrawals) – hence, there is a corresponding rise in blood pressure in the UK to a falling level of storage, especially at the start of the winter months. 

4) Just who is the largest exporter of oil to the US? This may come as a surprise, but it is Canada. The US imports more from our friends in the Great White North than from the entire Persian Gulf (= Saudi Arabia, UAE, Bahrain, Qatar, Kuwait and Oman). And also interestingly, Venezuela is ever-present in the top four eager exporters to the US, despite their rhetoric to the contrary

The shale revolution has left LNG rather deflated.

 

5) Shale, schmale. How much of US natural gas production comes from LNG?  In 2009 this level was approximately 1.6%. This is expected to grow this year, as more global production comes to market. Part of LNG‘s charm comes from the fact that it can be stored and transported at a size 600 times smaller than its gaseous form. 

6) Is coal still relevant in the US? In these greener-than-thou times that we live in, the fact that half the power generation in the US comes from coal is swept under the rug somewhat. And it doesn’t look like this percentage is going to radically change anytime soon, despite the possible implementation of a cap-and-trade-and-tax-and-shimmy scheme, or otherwise. Although technological advancement such as CCS (carbon capture and sequestration) may mitigate some of the emissions from coal, coal consumption in 2008 accounted for 37% of energy-related carbon emissions in the US.     

7) WTF is the SPR? (What Type of Facility is the Strategic Petroleum Reserve?) It is the emergency fuel store of oil for the US. There are four storage facilities, two in Louisiana, and two in Texas. Current capacity is 727 million barrels (over a trillion gallons). How full is the SPR? Pretty much to the brim

8) Is China really taking over the world through consuming more and more oil?  The answer is a resounding yes. In 1990, Chinese oil demand represented 3.4% of global demand. The estimate for 2010 is 10%. More importantly, since 2000, China alone has represented half of all growth in global oil demand. At the current rate, China will represent 20% of global oil demand by 2020, potentially a larger share than the US. 

9) Aw, c’mon then. How much of current US production comes from gas shale? While gas shale accounted for 2 Bcf/d five years ago (approximately 4% of total US production), this has now dramatically increased to approximately 8 Bcf/d due to seven key shale plays, including Barnett (5 Bcf/d), Fayetteville (1.3 Bcf/d) and Haynesville (1.1 Bcf/d).  This is approximately 14% of total US production; a rather significant amount.         

10) How much gasoline does the US consume in a year? The amount of gasoline consumed in the US annually would fill approximately 250,000 Olympic-size swimming pools.

2 Mar 25 2010 @ 9:50am by Matt Smith in Biofuels, Capital Markets, Crude Oil, energy consulting, Global Energy, Natural Gas, risk management, Risk Strategy

Ten reasons why energy commodities absolutely rock

My name is Matt Smith and I am a financial market junkie. Having left London and the warm bosom of investment management some 1,312 days ago, all could have gone very wrong. However, I have fallen into the arms of another – the world of energy commodities. So henceforth, my reasons for their stardom is tenfold:

1. Markets are all interlinked. Although some energy commodities may spend some time way out in left field, led by their own own fundamentals (step up to the plate, US natural gas), energy commodities take their lead at various times from other commodities, or other asset classes. So the more you know about general markets, the more you can apply that knowledge to the movement in specific commodities.

2. The word fungible. Commodities have fungibility, which means their units can be substituted for another – they are interchangeable, like a dime. Hence why a pipeline attack in Nigeria or geopolitical tension in the Middle East  matters to the price of your gas at the local gas station. It is also a fantastic word.

3. How commodities latch onto other commodities at various times. For example, European power markets pick and choose which price driver to follow, seemingly like picking a jelly belly from a bag (exaggeration for embellishment). At various times, power is led by coal, natural gas, oil or carbon permits, or varying combinations of these four. It keeps you on your toes.

  1. 4. The global reach of commodities. Trying to get your head around a domestic commodity like US natural gas is hard enough, let alone trying to determine how rampant Chinese oil demand weighs in with weak US oil refinery margins to influence UK Brent crude pricing. It surely can never be wholly mastered, but it sure is fun trying to decipher all these contrasting factors, from Corpus Christi to China, via Chiswell Street.
  2. 5. While leading participants in other markets try to hide their misdemeanors through a charade of smoke and mirrors (step up, Lehman Brothers and your Repo 105’s), the largest and most influential participant in the crude complex (Opec) continue to defy their own mandates (official quotas), while fully aware they will be called out on such dissention on a monthly basis. Refreshing.

6. How can you tire of a commodity such as US natural gas, when despite having all the sophisticated financial modeling and valuation tools in the world, prices remain at the mercy of the gods with hurricanes, heat, storms, and snow?

7. Technological advancement. Energy markets are constantly evolving through technological breakthroughs, and this will only continue through developments in such areas as LNG, smart grids, biofuels and green energy.

8. Forward curves. Not only do you have the ability to analyze commodities on the cash market or the front month contract, but you get to analyze the movements of the whole forward curve, going out for years to come. They are like a 3-D version of equities. And the forward curve is just as important as the prompt (or more) to energy risk management.

9. How markets in completely different geographical areas influence each other. Case in point, UK and US prompt natural gas prices have recently converged, due to their increased competition for LNG supplies. Fungibility + transportation links = an ever shrinking world.

10. Commodity markets are like equity markets are like bond markets are like currency markets. No matter how much you analyze a market, you will never master it. But we keep trying our darndest. And that’s why they rock.

1 Mar 5 2010 @ 10:50am by Matt Smith in Capital Markets, Crude Oil, Economy, Global Energy, Natural Gas, Random, UK natural gas

Burrito Bites

Welcome to Nonfarm Friday, my favorite day of the trading month, as it brings a more volatile reaction than eating mentos and drinking soda. Here’s a random list of events that have defined my deliberations on markets this week:

  1. There was a spanner in the works of the engine room of the global recovery, as Chinese Manufacturing took a nosedive (please feel free to complete the expletive “oh —-“).
  2. To temper this news a little, India came through with impressive manufacturing growth, and is expecting economic growth to ratchet up.  
  3. US natural gas has hit a three-month low as negative sentiment is encouraged by falling  weather-driven demand as we enter shoulder months.
  4. Greece had a bond auction and it wasn’t a catastrophe, mostly due to reassurances made the previous day about how they were to narrow their deficit gap(ing hole). Greece lives to fight another day, while tragic flaws remain.
  5. Crude broke back above $80, mostly due to currency fluctuations and risk appetite, and less to do with market-specific fundamentals (per the trend of recent times). The 4 mb build in weekly inventories was not bullish, but also not unusual.
  6. UK natural gas hit a new low for the year, with a similar story of funky fundamentals to US natty (=improving weather outlook, lower demand).
  7. US unemployment data came in better than expected (-38k jobs vs. -68k expected). The number was teed up to provoke a likely positive response…if  it had been poor, it would have been blamed on recent inclement weather, but as it was good it was viewed as robust. Hum dee dum.  

 

One good list deserves another, so let’s move straight on to the burrito bite buffet:

–Green tip of the week – save electricity on those middle of the night excursions by buying glow in the dark toilet paper.

–10 companies reinventing energy infrastructure.

–If anyone is able to chip in the additional $1,999,230, I’d love to combine our savings and  buy a Greek island. It’s for a good cause too.

Natural gas wins hands down in the fight against global warming.  

–This is random but fascinating – insuring Nicole Kidman. Also the first comment below the article about Jackie Chan is great.

–We hear about peak oil, but what about peak natural gas?.

–Prohibiting insider trading in commodities – The Eddie Murphy rule  (proceed to next bite if you have never seen the film Trading Places).

–A monster of an article, but fascinating – Michael Burry, the man who led the way in shorting subprime.

–Looking to own the latest in popular pets? – go get a goat.

The Burrito Deluxe Award of the week goes to equity markets. After a tentative start to the week, they are finishing with a flourish, having survived a torrential downpour of data in this first week of the month – avoiding potential pitfalls, potholes and puddles.

The Burnt Burrito Award of the week goes to stuttering Chinese data, from tumbling manufacturing numbers to stumbling forecasts of refinery slowdowns.

3 Nov 11 2009 @ 10:50am by Matt Smith in Global Energy, UK natural gas

Commodity markets are rock n’ roll. (UK nat gas is avant garde jazz)

Birth of the Cool

Birth of the Cool

Don’t get me wrong, I like jazz as much as I like Cuddy from the TV show House (which is a lot), but while commodity markets can throw out some crazy rock ‘n’ roll shapes sometimes, price swings can generally be explained away by a combination of fundamental factors, news-flow, technicals, or market sentiment. On the other hand, the UK natural gas market (aka NBP) has moments where it looks like it is moving to a truly random beat – and yes – as if the market is improvising as it goes.

This is because the NBP market is a different animal to all other commodity markets, in that its price drivers are so complex. From lowly storage, to volatile supply (from Norway, the North Sea or LNG – to name a few), to a forward price curve which is influenced by different factors at different times (the near term by fundamentals, the longer term by crude), NBP marches to the beat of its own drum. But like avant-garde jazz, there is some structure there; it is just that its structure leaves enough lee-way for any one of the varying price drivers to rise in influence and move the market in an exceptionally unusual fashion.

avant garde

avant garde

That’s not to say I am criticizing the market because it is bizarre. On the contrary, while it is hard enough to forecast a non-stop, hip-hopping global commodity like crude oil, it is just as challenging to forecast a quirky one like UK natural gas. But does that make it a flawed market? No; like Miles Davis, it is swayed by the cool.