Natural Gas Should Get a Boost from China's New Demand

China has been developing natural gas vehicles for many years, recently the number of vehicles running on nat gas has risen dramatically. For example, the government of Xi'an in western China, a medium size with 8M population, has decided to mandate all city buses and taxis using natural gas. The government website reported 5000 buses and 20000 taxis were using nat gas in 2008, and the number is expected to grow in coming years. This is just a tip of the iceberg. Nat gas may become a major alternative fuel to oil in China, and demand is ramping up.

The problem is China does not produce enough natural gas to meet its demand. China City Gas organization has predicted market demand to reach 110 billion cubic meters in 2010, growing from 80 billion cubic meters in 2008. However, natural gas supply in 2010 is expected to mark 90 billion cubic meters, falling short of market demand. As a result China needs to import at least 20 billion cubic meters in 2010 from overseas. This is expected to boost natural gas price going forward. With natural gas price at a historic low of $3.74, investors should take advantage and invest in an ETF such as (UNG), or producers such as Chesapeake Energy Group (CHK), Devon Energy Corp (DVN) and XTO Energy (XTO).

Disclosure: Author is long UNG option.

Comments

[Plan B Econ...:]

Relative to oil, natural gas is pretty cheap. Here's a chart showing the oil-to-natural gas ratio over the past 35yrs.

Once tar sands oil production picks up again, North American natural gas prices could rise - I believe decent amounts of natural gas are required to extract oil from tar sands. Tar sands production, of course, is dependant on the price of oil rising about $70-80bbl.

www.planbeconomics.com.../

Jun 10 09:22 AM

[Mad Hedge F...:]

dLong term, for sure. a long time friend from the energy industry, who used to put me up in his Dallas mansion when I was wildcatting for natural gas in the Barnet Shale a decade ago, called me up and told me I was out of my tree putting people into NG at $3.60. Huge discoveries, such as the Hainesville shale in Alabama, have made available enough NG to last the US another 50 years. The new generation of fracting technology, while great for taping into marginal, low grade fields, is much more difficult to turn off when prices are low without causing permanent damage. And then there is the looming threat of large scale LNG imports from abroad. The big gas companies will be forced to dump whatever they have on the market at any price, possibly taking prices this summer down to $2, or even $1. This, after all is the mother of all overshoot contracts. Of course, one could argue that these risks are what already took it down to $3.20, and that industry demand will happily soak up the excess supply. Did I mention that the hurricane season started yesterday? Only Mr. Market knows for sure, and he ain’t talking. In the past month, my calls have enabled traders to catch a 50% move in NG, followed by a 20% move (www.madhedgefundtrader... ).

Jun 10 10:38 AM

[harammph:]

Removing the last line from your post doesn't change the entire post.

Jun 10 11:04 AM

[bartpr:]

nat gas will not rise in price until the current production glut is drawn down. with rig counts down productions is soon to drop and inventories retract. this takes time we have been there before. this cycle is not different except for the coming lng imports coming in. i dont expect a big rise in ng prices like the past with the lng imports coming. some look for a $5 price cap the year.

remember cost of production is in excess of $6+mmcf. who is going to drill and lose on new production.

Jun 10 11:17 AM

[Mmarrkk:]

Freya: There is only one LNG liquifaction plant in the US and it is up in Alaska. It exports relatively small amounts of LNG and even that is being challenged by U.S. Congressmen.

All other LNG facilities in North America are re-gas plants where LNG is taken from its liquid form off of the carriers, converted to gas and shipped into our pipeline system for consumption. Chenierre requested approvals to re-export LNG...they take the liquid form into their storage tanks and then rather than gasify it for the pipeline, they turn around and put it back on ships in liquid form for re-export. Note that the LNG stays in liquid form the entire time. This is only helpful when your storage of liquid form gas is filling up. if not, why take the LNG off of a ship to begin with? Just redirect the ship to another port.

All of the above is a long way of saying that here in the Lower 48 and Mexico, we CANNOT take natural gas, liquify it and export it. We don't have the right facilities and it would take billions of dollars to build one. Its been looked at before and the economics just aren't there, particularly with all of the competition from Qatar and Australia. There is a plan up in British Columbia to take Canadian gas and liquify it for export. Long way away from building the plant, though, as the economics will be challenged.

Jun 10 11:25 AM

[H. T. Love:]

On Jun 10 10:38 AM Freya wrote:

> Sempra, LNG Facility, Louisiana...
>
> I know of "only one" means you haven't done any research on the subject
> yet wanted to stick in your post.

Nice assumption. But wrong. I've tried to make it clear in most of my posts that I'm new and learning. Sometime, being human and imperfect, I forget to do that.

I recently saw a post that stated we had only one here, from what seemed to be one of those "professional" outfits.

I'm *always* willing to learn from others, be corrected, etc. It's part of my spirit of "sharing" so that we can all benefit. I operate on the assumption that if I post something wrong, more knowledgeable folks will jump in and correct me and I feel this provides more benefit to *everyone*, especially myself, than just remaining silent and letting potentially important facts go un-aired.

I have no fear of having a delicate ego damaged. And I get little benefit if it is inflated. So I don't mind being new, wrong and corrected. I just care that the issues get aired so that all can benefit.

If you disagree, that's fine. But with the way you've posted to others and now to me, always willing to assume the worst about a poster, you are wasting your time if you target me. That's because I don't much care what your thoughts are when an attitude such as that is displayed.

If you really want to know whether I'm serious about learning, trying to share, doing research, etc, go the the Seeking Alpha blog they allow me to have. You will see all the evidence there of my newness, attempts to learn, trying to format things in a way that I may someday share, etc.

Otherwise, I suggest you don't waste your time and energy posting in response to anything I do unless you can't resist because of some gratification it gives you.

Have another day,

HardToLove

Jun 10 11:46 AM

[H. T. Love:]

Freya,

No problem, if you are sincere. We are all h00mon and make mistakes. I can't (er... *won't*) tell you how many years it took me to make sure my hot temper did not surface inappropriately. Let's just say the temper is still hot, but I've now a *very* long fuse - I guess it matches my age. :-((

I've really been impressed with the knowledge you seem willing to share when you do post.

The highest compliment I have in my arsenal to bestow upon another is "They are so generous with their knowledge and time".

That is there for you too.

Thanks for helping me (and the rest of the community) with that generosity.

HardToLove

P.S. BTW, now that you've got one "Aw Shit", you need a thousand "Atta' Boys" to get back to even! ;-))

On Jun 10 12:05 PM Freya wrote:

> Hardtolove: My apologies to you. Like I said to Mm, someone I trusted
> decided to become untrustworthy.
>
> I Vented in your direction.
>
> I would like to believe in the truth of every post just like I would
> like to believe that every Article is True, unfortunately, I can't
> because you have an article writer bragging about how readers have
> been fooled while others just make up things as they go along but
> do not retract what they have said when caught.
>
> I usually go through previous comments of posters to get a gist of
> where they are coming from. I did not do so in your case.
>
> I should have but did not. Sorry.

Jun 10 12:27 PM

[baldskits:]

20 billion cubic meters is over 700bcf. which equates to about 240 shiploads of LNG. If China is going to import this much LNG in 2010, they better get busy. They will need a fleet of 14 LNG Carriers to import this much gas from Qatar. Is there this much excess capacity in LNG? I don't know.


On Jun 10 09:21 AM scfranklin94 wrote:

> I think 20 billion cubic meters equates to 540 bcf, which is a lot,
> but then this demand was more than anticipated; check out how Qatar
> had to sell 250 bcf of LNG to Sempra for 2010 (which will bring the
> gas in via Cameron, La), because their target market, China and India
> doesn't need the gas.
>
> Everyone is waiting and hoping for the 'big ramp up' in US nat gas
> prices, because it seems so obvious that prices 'have to go up soon';
> meanwhile incremental LNG production for 2010 is having trouble finding
> a market (Note how Russia had to sell 128k mcf/day to Sempra for
> Baja import, because neither Japan or South Korea would take the
> gas).
>
> We know we're going to completely fill storage this fall and it would
> take a very severe winter (like 1976) to deplete the inventory levels.
> It's more likely that we'll have a winter similar or more mild than
> last year, so there's a real possibility that we exit the winter
> with near record storage inventory in April. If nat gas demand hasn't
> returned to early 2008 levels (which is most likely) then the drop
> off in nat gas production for 2010 will be offset somewhat by all
> the LNG coming here. So it's very possible that nat gas prices for
> next summer that are currently in the $6+ range will fall to $5 or
> $4.
>
> The only scenario that makes NG prices extremely bullish for 2010
> is that the US economy comes screaming back to life in the next six
> months. If you think the US economy will grow gradually, if at all,
> in the next six months (like I do), then UNG is a poor investment
> for the near term.

Jun 10 12:32 PM

[Mmarrkk:]

Freya: let me know when you get your DD complete and I'd be happy to provide add'l input as you reach conclusions. Since I work in the LNG business, I can certainly help out. The DD shouldn't be too difficult as all of these plants have to go through FERC certification and any export requires an export license. And, all of these plants are multi-billion projects, so they just don't happen and lots of planning, investing and press!

Jun 10 12:36 PM

[HaavBline:]

Poor article. Good discussions.

A shallow, poorly researched article like this one can be very damaging to your credibility.

Jun 10 04:18 PM

[H. T. Love:]

On Jun 10 03:38 PM Freya wrote:

> HTL: Keep posting, I have a thumbs up available if deserved. "Atta
> boys" have to deserve it, BTW. But they will keep coming. Rather
> than being ignored, comments will be recognised.

OK. Thanks. It just so happens I had prepared my first attempt at posting an article for the morning mailings. It appears that I will not be publishing it, but I think it might be useful to some newer folks like myself. More on that later.

This means that it is much less convenient for those that might wish to participate with or help educate me. For that I'm sorry. It also means that my learning will be slowed as I will not be able to get the potential benefit of the feedback from the widespread "public exposure" that a posted article would engender.

Anyway, I submitted it on Thursday, 6/4. The next morning SA's Simi Hendon told me that my pseudonym was not "professional" and asked me to pick another or use my real name. I don't care to use my real name where it will appear everywhere on the net. And I'm not one of those really "creative/artistic" types that can easily come up with another name. So I immediately repled saying I was not a professional and I would prefer to use my current pseudonym - I believe it to be fairly descriptive of me, as sad as that may seem to some.

Well, no reply until I sent two reminders this morning. Simi replied that my moniker didn't really fit with their website theme.

As a result, I replied that it would take me awhile to come up with something and requested that my submission be withdrawn.

Now, to my point. I need to update it since so much time has passed. *If*, and only if, you have time and interest, I would welcome any constructive comments you might have on the article. If you don't have the time or interest, I understand completely.

OH! And for anyone else that sees this comment, your input would also be welcome.

There are a couple things to keep in mind.

1. Being new at all this, many of my conclusions are drawn from "generalizations" I have learned during the relatively recent time I've been trying to learn this stuff, since I have not yet had time to build the "knowledge base" that allows more precise judgements. For me to attempt to "sound too expert" would constitue a "falsehood" in my own eyes. So keep that in mind when thoughts of "style", more detail which I did not yet posses, etc. comes to your mind, as I presume it will.

2. At the same time as I began this, I had recently begun learning how to use the charts for technical analysis. So I probably have more of that in there than some would prefer. But it was one thing I felt would help me avoid big mistakes.

That blog entry is here

seekingalpha.com/insta...

If you want to see the "stream of conciousness" that helped me develop that post, that is here.

seekingalpha.com/insta...

I'm not really looking for commentary on that one since it is just a work area for me, but comments are still welcome.

Thanks in advance,
HardToLove

P.S. I guess this means I should be ticked at SA, but then it would be my problem, not their's. That's not gonna happen.

HTL

Jun 10 04:43 PM

[H. T. Love:]

On Jun 10 04:37 PM Freya wrote:

> I'm screwed unless NG rises enough to make it profitable to ship
> to the US which it is not currently.
>
> Both CQP and the proposed MMR are receivers. MMR has extensive prospects
> in its own right so am not particularly worried about it, expecially
> since it Co-Chair isn't either.
>
> CQP however, at this point, it has really nothing going for it other
> its Chairman's buying on the open market. But it will be a really
> big Facility.
>
> Will wait through next week to pull the plug or not, my short term
> target is $8. Iran's elections are on Friday. If whatshis face gets
> re-elected, I'll maintain my own position. He is still an accident
> waiting to happen in the Gulf States.

I haven't done today's look-see yet, but using UNG as a proxy (if that's even valid), I think you might be SOL near-term. Oil up $1.42 to $71.43 but NG still went down $0.026 to $3.70. If OIL goes up, but NG down, that may affirm my feeling that the linkage with oil (appx. 18:1) was broken last year and continues to be so. As I posted elsewhere, I really do believe UNG is heading for what I believe to be weak support near $13.50, and I'm fearful that it might blow through that. If this truly is a near-term proxy for the futures, I'm afraid I might be right and NG keeps going down or range-trading for some time yet.

The only thing that gives me confidence that I *may* be on the right track is that I successfully identifed the top in UNG a short while back and got out at a profit. That chart is available and annotated in both of those URLs I posted in the other comment I just made.

I sure hope I'm wrong (my ego can stand it) since I have no skin in that game at the moment - waiting for a good re-entry point.

Best wishes for you to get off easy there.

HardToLove

P.S. I just took a quick glance at the 200 day chart and, as I feared, down on *huge* volume and all the "technicals" are angling towards more negative, or less positive.

Jun 10 05:01 PM

[Alan Young:]

Ignoring the comment stream.

The article is deeply flawed in linking China's demand to US supply. If North America ever starts exporting NG to China, I want to invest in the ballon business, as that's the most likely way to get it there.

A case could be made for investing in the Central Asian resource companies that are linked to China by pipeline--if you could find them.

Jun 10 06:05 PM

[The Reward ...:]

A cursory scan of previous comments indicates I may just be piling on here, so I'll be brief... Natural gas prices are based on regional supply and demand. They are not like oil prices. Nat gas is not easily transported anywhere in the world (unlike oil). So buying UNG or the North American operators will get you nowhere. From what I understand, China gets most of its nat gas from Myanmar and Central Asia, and small amounts from domestic reserves. It may also buy from Gazprom in the future, which of course you could buy since it's traded publicly. Of course, that's dependent on a lot of "ifs", such as the proposed pipeline actually being built (which never happens on time, and often just doesn't happen), the stability of Sino-Russian political relations, which can get quite frosty, etc. Also, investing in Gazprom itself has inherent risks as it is controlled by the Russian government, whose overriding concern, naturally, is furthering its geopolitical goals. Profitability is an afterthought.

Jun 10 08:39 PM

[naidle:]

How so? The extraction of potash, oil sands, mineral deposits etc require nat gas. As China grows so does the need for nat gas as a processing fuel.

I get your underlying point though. Like water, you can't just ship it over there.


On Jun 10 08:43 AM Sparkspread wrote:

> Pls do not link every commodity to China demand. Nat gas is pretty
> much a regional product in North America...
>
> China also getting cheap gas from former Russian Union countries
> where the prices are locked down through long term contracts....

Jun 11 12:29 AM

[H. T. Love:]

On Jun 10 11:02 PM Freya wrote:

> HardToLove: You could go the route of using initials or another language.
> HTL or whatever.

DUH! I never even thought of that! I knew I wasn't "creative/artistic", but to *that* degree?!

>
> I understand fully on wanting to maintain anonymity if you are not
> trying to "sell" something or other.
>
> On the other hand posting your Article as an Instablog can lead to
> a better interchange of comments if it has merit, basically because
> they would be "your" unaltered ideas.

That part is quite attractive. I've noticed more than a few posts where the author had to comment on what was the original title. It's the editor's prerogative I guess, but since it's essentially a "blog" I wish they wouldn't bother with it.

>
> And it would still be spread over the Worldwide Web.
>
> Just a thought.

My concern was that most folks have a lot on their plate and it would be extra work for them to keep up with it since (I presume?) they would have no way of knowing when I had updated. Worse, how does one stumble onto even knowing it exists? I'm sure that googling around all day hunting for stuff is better than what we used to have to do, but today it can get really time-consuming. Just too much stuff out there now that give "false positives".

I know that the morning mailing is really conveniet for me. If I didn't have a tool like that I think I would be a lot further back on the learning curve.

As to being spread over the web, that's not my goal at all. One of the things I learned about myself long ago is that a sense of community is something I find satisfying, even though I'm essentially a "loner" and quite independent. I think it's the "community effort" and shared success I find attractive. WWW doesn't really come anywhere near addressing that for me. For others, I can see it.

Well, thanks for taking the time. I've a couple (obvious?) options now.

HardToLove

Jun 11 05:48 AM

[Augustus:]

The target market for the LNG exports has to be western Europe. They are being held hostage by the ruskies now and are paying jacked up prices. The US has a current oversupply that is unlikely to disappear for a couple of years. OBamanomics will increase US industrial costs, driving more industrial users offshore. The economic rebound, if any, will be weak and tepid, at best. Very little LNG will be landed at US receipt points as the market is saturated with supply.

Jun 11 11:05 PM

[fran:]

do you have reference supporting data for your claim. it is unlikely. if you have, provide references.


On Jun 10 08:20 AM Freya wrote:

> How about Sabine Pass to mainland China?
>
> There is one city and one city alone in all of China where the CNG
> concept is being tried. That's it, And its strictly Intra-City.<br/>

Jun 12 11:32 AM

[fran:]

it is so nice to see someone who understands the facts. right on!


On Jun 10 11:25 AM Mmarrkk wrote:

> Freya: There is only one LNG liquifaction plant in the US and it
> is up in Alaska. It exports relatively small amounts of LNG and even
> that is being challenged by U.S. Congressmen.
>
> All other LNG facilities in North America are re-gas plants where
> LNG is taken from its liquid form off of the carriers, converted
> to gas and shipped into our pipeline system for consumption. Chenierre
> requested approvals to re-export LNG...they take the liquid form
> into their storage tanks and then rather than gasify it for the pipeline,
> they turn around and put it back on ships in liquid form for re-export.
> Note that the LNG stays in liquid form the entire time. This is only
> helpful when your storage of liquid form gas is filling up. if not,
> why take the LNG off of a ship to begin with? Just redirect the ship
> to another port.
>
> All of the above is a long way of saying that here in the Lower 48
> and Mexico, we CANNOT take natural gas, liquify it and export it.
> We don't have the right facilities and it would take billions of
> dollars to build one. Its been looked at before and the economics
> just aren't there, particularly with all of the competition from
> Qatar and Australia. There is a plan up in British Columbia to take
> Canadian gas and liquify it for export. Long way away from building
> the plant, though, as the economics will be challenged.

Jun 12 11:44 AM

[harammph:]

Fran: Please provide support for your contention that that "it is unlikely" that there is only one city in China where CNG rules. Please Provide a List of Chinese Car buying by Category: Electric Vehicles, Hydrogen Vehicles, CNG vehicles, Hybrid Vehicles, etc.

Is there any supportable Link to anything China does Internally which is other than Governmental?

To my knowledge, there is only One Chinese Company operating in One Chinese City which is expanding through the Installation of CNG refuelling stations.

My own probable guess "One = One", after all, it has been years and if there is only one such Company, then the Chinese do not think much of the Technology. Unlike Solar, coal, etc.

Prove This, Prove That, Prove that You Exist.

Prove that the Now isn't created from instant to instant with all memories intact.

Jun 13 12:22 AM