Natural Gas ETF: Nowhere to Go but Up, Yet It Keeps Going Down 57 comments
Tim Iacono
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Bloomberg reported yesterday on the consensus amongst traders and investors that the price of natural gas has nowhere to go but up, yet it keeps going down ... a lot.
The United States Natural Gas Fund expanded today to the largest position in its 27-month history as investors snapped up the last of its shares and it awaited government approval to issue more units.
As of early today, the exchange-traded fund owned the equivalent of 124,926 natural gas futures contracts on the New York Mercantile Exchange. The number of shares outstanding reached a record yesterday, rising 14.5 percent to 322.3 million, more than 10 times the total at the start of the year, and worth $3.97 billion.
The fund’s natural gas position, spread across swaps and futures on the Nymex and the ICE over-the counter-market, equals the equivalent of 86 percent of the open interest in natural gas futures on the NYMEX.
“Clearly, this has become an extraordinarily attractive investment,” said Dave Nadig, an associate editor at IndexUniverse.com, in Decatur, Georgia. “There’s a lot of speculation among people like us who are wondering who is in this.”
The ETF can’t grow further for now because yesterday it ran out of new shares to issue. The ETF asked the Securities Exchange Commission on June 5 for permission to create 1 billion new shares, and is awaiting approval.
One of the interview subjects for the story noted that the total value of the futures contracts holdings for the United States Natural Gas Fund (NYSEArca:UNG) are now so large that they are creating distortions in the market. Duh...
Here's the chart - a pretty ugly picture, unless you sold last summer.
The model portfolio at Iacono Research had a small position in this ETF last year - bought it at around $45, watched it go up to over $60, and then sold it at around $25 late in the year.
Fortunately, this was the exception to the rule for energy positions last year as a number of sales of crude oil ETFs at mid-year worked out much, much better.
Little did I know there was another 50 percent to be lost with UNG if only I'd have stuck with it for just a little while longer.
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This article has 57 comments:
I fully expect the price of natural gas to dip into the mid $2's by October. The producing region already has more gas in storage than at the peak of last year and we still have ~3.5 months of fillup to go. You are going to get physical limitations on injection (you can't put 6 gallons of chit in a 5 gallon bag) and that will drive the spot price down hard (if you want to see how this works, just look at the November - February action on oil prices as storage in Cushing, Oklahoma was maxed out and the nymex price was crushed).
Natural gas still has plenty of downside based on fundamentals.
With the boom in prices came a boom in drilling. And, at the higher prices, the exploration plays like the Haynesville were very economic. And along with the drilling came a soaring production increase. And along with everything else came a HUGE drive up in prices for acreage (especially exploration acreage, up from $2k an acre a couple of years ago to around $30k an acre in the hottest areas).
As production soared, and demand dropped (economic downturn, mild weather), oversupply has become a HUGE issue. The storage of natural gas has just literally smashed old records. There is ~30% more natural gas in storage right now than the past 5 year average. Simple economics, supply >>>> demand = huge drop in prices.
As prices have dropped, many areas have become uneconomic. It’s pretty widely known that the breakeven economics for the Barnett is around $5 - $5.50/mcf. Right now, it is around $3.45/mcf. Thus, drilling programs have been slashed all over. The rig count is down 55% since October.
Well, you would think that the major drop in rigs would lower production and help the situation. Unfortunately, here is the kicker. These new shale plays, being drilled up through the use of horizontal wells, are bringing on MONSTER wells. A vertical well in an “average” formation might come on at 1 mmcfd. These new Haynesville wells are coming on at 15-25 mmcfd. So, one new Haynesville well basically take the place of 15 “average” wells. So while the rig count has dropped drastically, the wells coming online right now are so much stronger that production hasn’t hardly been affected.
If that weren’t bad enough, here is kicker #2: most of that high $$$$ acreage was exploration acreage (meaning, no production to hold the leases yet). And, most of those leases were 2 year leases. Now, if you take a section (640 acres), you only need 1 well producing on that lease to hold it. And, at 40 acre spacing, there is the potential per section for 640 / 40 = 16 drill locations. Now, at $30k/acre and 640 acres in a section, you already have $19 million in sunk costs per section. You have literally hundreds of millions (billions?) of dollars tied up in non-producing acreage with a shortly expiring time clock. If they don’t get at least one well drilled and online to hold the lease, they risk losing all of that sunk money.
So, even if wells are uneconomic now, they are still drilling to get one well per section online to hold the lease. This allows them to have that backlog of the remaining 15 locations so that when prices recover, they have access to those reserves. They are willing to drill an uneconomic well today so that they don’t lose the lease that they have already spent tons of money on. And, since they have to keep drilling for this reason, it just continues to add to the current oversupply (regardless of prices).
Having said all of that, we are going to start seeing physical limitations on natural gas storage (you can’t cram 6 lbs of shit into a 5 lb bag). There is already more natural gas in storage in the central region than at the peak of last year (2nd week of November). And, we still have 3.5 months of storage to go! Yikes! Due to this, the price is going to get driven down sharply because there will be nowhere for the natural gas to go. Once natural gas prices get driven down into the low $2s, companies WILL start shutting in production and dropping even MORE rigs. This well help the oversupply get worked off, and only THEN will prices start to turn upwards.
On Jul 09 10:36 AM skrangeo wrote:
> here's the deal with natural gas (and the reason I've made money
> buying/selling puts on UNG)
>
> With the boom in prices came a boom in drilling. And, at the higher
> prices, the exploration plays like the Haynesville were very economic.
> And along with the drilling came a soaring production increase. And
> along with everything else came a HUGE drive up in prices for acreage
> (especially exploration acreage, up from $2k an acre a couple of
> years ago to around $30k an acre in the hottest areas).
>
> As production soared, and demand dropped (economic downturn, mild
> weather), oversupply has become a HUGE issue. The storage of natural
> gas has just literally smashed old records. There is ~30% more natural
> gas in storage right now than the past 5 year average. Simple economics,
> supply >>>> demand = huge drop in prices.
>
> As prices have dropped, many areas have become uneconomic. It’s pretty
> widely known that the breakeven economics for the Barnett is around
> $5 - $5.50/mcf. Right now, it is around $3.45/mcf. Thus, drilling
> programs have been slashed all over. The rig count is down 55% since
> October.
>
> Well, you would think that the major drop in rigs would lower production
> and help the situation. Unfortunately, here is the kicker. These
> new shale plays, being drilled up through the use of horizontal wells,
> are bringing on MONSTER wells. A vertical well in an “average” formation
> might come on at 1 mmcfd. These new Haynesville wells are coming
> on at 15-25 mmcfd. So, one new Haynesville well basically take the
> place of 15 “average” wells. So while the rig count has dropped drastically,
> the wells coming online right now are so much stronger that production
> hasn’t hardly been affected.
>
> If that weren’t bad enough, here is kicker #2: most of that high
> $$$$ acreage was exploration acreage (meaning, no production to hold
> the leases yet). And, most of those leases were 2 year leases. Now,
> if you take a section (640 acres), you only need 1 well producing
> on that lease to hold it. And, at 40 acre spacing, there is the potential
> per section for 640 / 40 = 16 drill locations. Now, at $30k/acre
> and 640 acres in a section, you already have $19 million in sunk
> costs per section. You have literally hundreds of millions (billions?)
> of dollars tied up in non-producing acreage with a shortly expiring
> time clock. If they don’t get at least one well drilled and online
> to hold the lease, they risk losing all of that sunk money.
>
> So, even if wells are uneconomic now, they are still drilling to
> get one well per section online to hold the lease. This allows them
> to have that backlog of the remaining 15 locations so that when prices
> recover, they have access to those reserves. They are willing to
> drill an uneconomic well today so that they don’t lose the lease
> that they have already spent tons of money on. And, since they have
> to keep drilling for this reason, it just continues to add to the
> current oversupply (regardless of prices).
>
> Having said all of that, we are going to start seeing physical limitations
> on natural gas storage (you can’t cram 6 lbs of shit into a 5 lb
> bag). There is already more natural gas in storage in the central
> region than at the peak of last year (2nd week of November). And,
> we still have 3.5 months of storage to go! Yikes! Due to this, the
> price is going to get driven down sharply because there will be nowhere
> for the natural gas to go. Once natural gas prices get driven down
> into the low $2s, companies WILL start shutting in production and
> dropping even MORE rigs. This well help the oversupply get worked
> off, and only THEN will prices start to turn upwards.
The market "forward looking" is priced into the out months which is why the natural gas curve is in such a contango (out pricing greater than near term). But, that doesn't help the near term issues (60 - 120 days). While the out months are "currently" higher, if the supply/demand issue isn't resolved, they will get pushed down just like August contracts currently are. For reference, on Jan 14th August contracts were $5.47. On March 3rd, August was $4.69. On May 19th, August was $4.38. And today, sub $3.50.
The prompt month being driven down is a function of FUNDAMENTALS. And right now, the FUNDAMENTALS are quite bearish. And as more gas goes into storage and PHSYSICAL LIMITATIONS become an issue, watch Henry Hub sink like the Titanic.
So...forget the fundies of nat gas....isn't it crazy that someone can keep printing futures contracts for an entity to buy that has an open intention NOT to take delivery of those contracts?
Isn't this bad? Kind of like sub-prime bad?
It's exactly the same thing. Securitization of commodities, then selling those securities to an insatiable entity that is open about it NOT TAKING DELIVERY...
This is dilutive to both the futures contracts themselves...and of course if you are holding UNG shares...and they have to keep making more shares...your shares are being diluted too.
Isn't this illegal? If not why not?
UNG holders are nothing but rubes...you aren't holding an asset that will appreciate any time soon even if fundies improve.
On Jul 09 04:51 PM pintelho wrote:
> Elephant in the room here.
>
> So...forget the fundies of nat gas....isn't it crazy that someone
> can keep printing futures contracts for an entity to buy that has
> an open intention NOT to take delivery of those contracts?
>
> Isn't this bad? Kind of like sub-prime bad?
>
> It's exactly the same thing. Securitization of commodities, then
> selling those securities to an insatiable entity that is open about
> it NOT TAKING DELIVERY...
>
> This is dilutive to both the futures contracts themselves...and of
> course if you are holding UNG shares...and they have to keep making
> more shares...your shares are being diluted too.
>
> Isn't this illegal? If not why not?
>
> UNG holders are nothing but rubes...you aren't holding an asset that
> will appreciate any time soon even if fundies improve.
On Jul 09 10:36 AM skrangeo wrote:
> here's the deal with natural gas (and the reason I've made money
> buying/selling puts on UNG)
>
> With the boom in prices came a boom in drilling. And, at the higher
> prices, the exploration plays like the Haynesville were very economic.
> And along with the drilling came a soaring production increase. And
> along with everything else came a HUGE drive up in prices for acreage
> (especially exploration acreage, up from $2k an acre a couple of
> years ago to around $30k an acre in the hottest areas).
>
> As production soared, and demand dropped (economic downturn, mild
> weather), oversupply has become a HUGE issue. The storage of natural
> gas has just literally smashed old records. There is ~30% more natural
> gas in storage right now than the past 5 year average. Simple economics,
> supply >>>> demand = huge drop in prices.
>
> As prices have dropped, many areas have become uneconomic. It’s pretty
> widely known that the breakeven economics for the Barnett is around
> $5 - $5.50/mcf. Right now, it is around $3.45/mcf. Thus, drilling
> programs have been slashed all over. The rig count is down 55% since
> October.
>
> Well, you would think that the major drop in rigs would lower production
> and help the situation. Unfortunately, here is the kicker. These
> new shale plays, being drilled up through the use of horizontal wells,
> are bringing on MONSTER wells. A vertical well in an “average” formation
> might come on at 1 mmcfd. These new Haynesville wells are coming
> on at 15-25 mmcfd. So, one new Haynesville well basically take the
> place of 15 “average” wells. So while the rig count has dropped drastically,
> the wells coming online right now are so much stronger that production
> hasn’t hardly been affected.
>
> If that weren’t bad enough, here is kicker #2: most of that high
> $$$$ acreage was exploration acreage (meaning, no production to hold
> the leases yet). And, most of those leases were 2 year leases. Now,
> if you take a section (640 acres), you only need 1 well producing
> on that lease to hold it. And, at 40 acre spacing, there is the potential
> per section for 640 / 40 = 16 drill locations. Now, at $30k/acre
> and 640 acres in a section, you already have $19 million in sunk
> costs per section. You have literally hundreds of millions (billions?)
> of dollars tied up in non-producing acreage with a shortly expiring
> time clock. If they don’t get at least one well drilled and online
> to hold the lease, they risk losing all of that sunk money.
>
> So, even if wells are uneconomic now, they are still drilling to
> get one well per section online to hold the lease. This allows them
> to have that backlog of the remaining 15 locations so that when prices
> recover, they have access to those reserves. They are willing to
> drill an uneconomic well today so that they don’t lose the lease
> that they have already spent tons of money on. And, since they have
> to keep drilling for this reason, it just continues to add to the
> current oversupply (regardless of prices).
>
> Having said all of that, we are going to start seeing physical limitations
> on natural gas storage (you can’t cram 6 lbs of shit into a 5 lb
> bag). There is already more natural gas in storage in the central
> region than at the peak of last year (2nd week of November). And,
> we still have 3.5 months of storage to go! Yikes! Due to this, the
> price is going to get driven down sharply because there will be nowhere
> for the natural gas to go. Once natural gas prices get driven down
> into the low $2s, companies WILL start shutting in production and
> dropping even MORE rigs. This well help the oversupply get worked
> off, and only THEN will prices start to turn upwards.
www.eia.doe.gov/emeu/s...
It seems now that natural gas price has dropped so low, in comparison to coal price, that there is now incentive for electricity generators to burn natural gas instead of coal, for electricity generation.
This would seem to put a very very very solid bottom on natural gas price at current level. Burning natural gas instead of coal, on a regular basis, instead of only durign peak hours, to generate electricity, is a tremendous amount of demand boost.
seekingalpha.com/autho...
Even if UNG were to go below $10, $5........and I will say, "Dude! Buy as much as you can afford! And hold it for your retirement" At below $10, it is a screaming buy!
The contango from August to Jan or Feb also makes a huge negative yield roll. If bought the front contract and rolled in to the next month when the front expired you would eventually buy up to 50% less contracts. It is difficult to overcome this negative yield. Also the same months a year forward are substantially higher than this years prices. The market has made two large assumptions. it has assumed the supply overhang is temporary and it has assumed the there will be a substantial economic rebound increasing industrial demand. Sadly, the reality is that neither of those two scenarios are likely.
UNG is not an investment that is to be held for the above reasons. It is merely a trading instrument. If the ETF doesn't jump 10-25% during the first large hurricane warning then there is no relief in sight until the start of the peak winter heating demand (December/January.) North America is awash in natural gas. It isn't in oil. All the fuel switchability from oil to NG has already occurred so no one can capitalize to the relative differences. Investors shouldn't think NG is cheap because the NG/WTI spread is at record levels. If anything WTI is overpriced and NG is accurately priced give record storage, large reductions in industrial demand and new supply.
After all, how many times have we seen 'fundamentals be damned' in commodity movements??
I think UNG has tracked ng somewhat accurately up to this point, but with the popularity of the fund, I think it will veer off course going forward. I see the same scenario happening to UNG that happened to USO. Both are supposed to be tracking the front month of their respective commodities (UNG:natural gas, USO:oil). However, look what happened to USO. Oil went from the $30's in January to over $70 and now sits close to $60. Meanwhile, over the same time frame, USO has not tracked oil very well at all.
online.wsj.com/article...
Every bottom picker in the world that's who!
I own a small position in UNG --down 10% so far and will wait and see
On Jul 09 11:58 AM TVG wrote:
> The big question is.... how forward looking IS the market on these
> issues...that all that you said is already priced in to the incredible
> decline?????
This nation has, more than any other problem, a leadership deficit. We throw money at problems while alternative solutions are in plain sight to the astute observer.
Leadership deficit is an understatement.
On Jul 10 10:46 AM axelrod608 wrote:
> skrangeo's comments beg the question - WTF are this nation's "leaders"
> doing by ignoring the situation ?? One would think that LNG for auto
> fuel - and cars that burn it - would be a national priority. Unfortunately,
> outside the box thinkers are in short supply at the levels where
> national policy is made.
>
> This nation has, more than any other problem, a leadership deficit.
> We throw money at problems while alternative solutions are in plain
> sight to the astute observer.
> One hurricane away from an enomous spike in the price. Shorts will
> get utterly destroyed.
So we pray for a hurricane to rescue us from a lousy fundamental position? Sounds like a GREAT investment strategy to me.
I"m assuming a long recession, which means demand for NG will be depressed for years barring global cooling.
I think the "Green radicals" that Obama has chosen to surround himself with, would need to be dragged,kicking and screaming to acknowledge what SHOULD be as plain as the nose on your face.
On Jul 10 10:46 AM axelrod608 wrote:
> skrangeo's comments beg the question - WTF are this nation's "leaders"
> doing by ignoring the situation ?? One would think that LNG for auto
> fuel - and cars that burn it - would be a national priority. Unfortunately,
> outside the box thinkers are in short supply at the levels where
> national policy is made.
>
> This nation has, more than any other problem, a leadership deficit.
> We throw money at problems while alternative solutions are in plain
> sight to the astute observer.
BTW, did you notice the SA article today that we now get NG from canada piped in and turn it around and ship it back up to Canada, more westerly?
The big outfit in Colorado issued an operational order telling all with interruptable contracts they can't ship in and must remove all NG from that location by 7/31?
Interesting times.
HardToLove
On Jul 10 09:07 AM Shale Gas wrote:
> Sorry, here it is:
>
> online.wsj.com/article...
I also dug up recent storage capacity growth:
tonto.eia.doe.gov/dnav...
And consumption decline:
tonto.eia.doe.gov/dnav...
I was going to buy UNG, but with this kind of fundamentals against it, I'm going to stay out for now.
Are you listening? The debt that the banks have been allowed to push into the money supply has inflated it FAR more than the fed could ever hope to. And now that debt is going bad. When the debt is written off, the money supply shrinks. Period. The fed has no control over it because the debt is a couple orders of magnitude larger than what the fed can print up.
Some people think the fed can just print forever. China, apparently, does not agree. They made it clear to Geithner recently that he would not be allowed to do this without interest rates skyrocketing. If that is allowed to happen, home sales will plummet and housing prices will follow them down. This will trash the banks who are trying to hold the debt associated with overpriced homes on their books as if it will some day return to 2006 valuations. If interest rates go to 10% or more, home prices could see 1985 values.
It's a catch 22 and the result is deflation. The fed is caught between a rock and a hard case (China). Commodities have rolled over for the next wave down.
On Jul 10 05:27 AM Ryu Mei Co wrote:
> UNG may fall in the short term, but to me, this is a long term investment.
> Like Jim Rogers always said "I will hold, and I will buy more when
> price goes down". US has so much Natural Gas in its own back yard
> that one of these day they are going to use it to replace foreign
> oil. Imagine the potential of Natural Gas as an alternate source
> of clean energy in the US.
>
> Even if UNG were to go below $10, $5........and I will say, "Dude!
> Buy as much as you can afford! And hold it for your retirement" At
> below $10, it is a screaming buy!
But Natural Gas Isn't Oil. It's not as much directly effected by the rise and fall of the US Dollar as the supply and demand is domestic. Of course, if people have less to spend and less accessibility to borrowed money, they may not have as much discretionary and non-discretionary income; but I'd argue that the price people will pay to heat their home in winter will not decline at the pace of deflation - if that is the eventual macro-economic result.
Lastly, deflationary forces would have to knock down the price of drilling by 50% before most drillers would be able to operate on any margin at all. This winter will find extractions down, with consumption likely to be up as prices are low. The eventual result could be a price spike with production stuck and demand fixed.
On Jul 10 08:03 PM Did U Think The Ponzi Scheme Would Last? wrote:
> Any of you guys ever hear about this thing called deflation that's
> going around? If not, time to read up on Prechter who predicted
> this would all happen well in advance. The money supply is the monetary
> base that we all hear about the fed debasing but it is also credit
> (and its brother, debt) that the fed HAS NOTHING TO DO WITH AND NO
> CONTROL OVER ONCE IT IS OUT THERE.
>
> Are you listening? The debt that the banks have been allowed to
> push into the money supply has inflated it FAR more than the fed
> could ever hope to. And now that debt is going bad. When the debt
> is written off, the money supply shrinks. Period. The fed has no
> control over it because the debt is a couple orders of magnitude
> larger than what the fed can print up.
>
> Some people think the fed can just print forever. China, apparently,
> does not agree. They made it clear to Geithner recently that he would
> not be allowed to do this without interest rates skyrocketing. If
> that is allowed to happen, home sales will plummet and housing prices
> will follow them down. This will trash the banks who are trying
> to hold the debt associated with overpriced homes on their books
> as if it will some day return to 2006 valuations. If interest rates
> go to 10% or more, home prices could see 1985 values.
>
> It's a catch 22 and the result is deflation. The fed is caught between
> a rock and a hard case (China). Commodities have rolled over for
> the next wave down.
Any other information on prospective LNG imports and their impact on prospects for non-conventional gas?
with only one empty chamber!
Don't listen to the nonsense Wall Street propaganda. Here is a web page of the EIA detailing recent prices of natural gas for import and export as LNG:
tonto.eia.doe.gov/dnav...
Look the LNG import and export prices. They are way much higher than current domestic natural gas price. Now you tell me who is going to endure all the cost to import LNG and sell it at only $2 per MMBTU? The LNG importation will drop to zero and a large chunk of domestic natural gas production will be exported as LNG, at far higher prices.
My most favorite investments right now are LNG, palladium (SWC/PAL), and shipping (EXM, EGLE, DRYS, TBSI):
seekingalpha.com/artic...
I think I really want to call a solid bottom of NG price at this point, as now there is incentive to burn natural gas instead of coal. See a recent EIA report on that possibility.
On Jul 11 11:02 AM Philipp wrote:
> The Wall Street Journal recently had an article suggesting that in
> the next few years LNG would become a competitor to domestic non-conventional
> gas. The article mentioned a price of $2 per million BTU. It goes
> on to say that currently the more serious bottleneck to increasing
> imports is a limited capacity to liquefy natural gas, but this problem
> will be tackled over the next few years. Capacity to land and re-liquefy
> LNG is less of a problem and there are projects to cope with it as
> well. Resources of conventional liquefiable natural gas, not only
> in the Middle East, are enormous. If this scenario is realistic,
> then gas should remain cheap over the long term., but even increased
> consumption would be unlikely to drive up price significantly. <br/>
>
> Any other information on prospective LNG imports and their impact
> on prospects for non-conventional gas?
That is a long was from $30k. Guess my mineral rights are in the wrong damn place (Roger Mills County, OK).
I understand why they want to drill now, rigs and labor prices are at bargin basement prices. Day rates have been cut in half (or more) from a year ago at this time and you can pick and chose roughnecks all day. They also need to keep up their production quota and meet some kind of revenue numbers. But, I only want to sign a lease on one condition: They drill now, then shut off the valve until NG hits $10.00.
In all of these NG articles I am reading, nobody is talking about:
1) All these LNG terminals, like ExxonMobil's LNG from Qatar that they have spent billions to get to North America and Europe. They are supposed to start shipping the LNG a shore this month. (More Supply.)
2) Nobody is offering up a solution in these articles. Mine is, I want all small pickup, van, and passanger vehicles that travel long distances, which belong to either a federal (BLM, USGS, UFS, DofTI, FBI, U.S. Border Patrol, etc.), states (DOT, Health and Human Services, extension agencies, Texas Railroad Commission, etc.) and major cities (Dallas, Denver, etc.,) & counties (top 100 to 200) in this country to be required to put all of these smaller vehilces, say under 5000 GVWR, on either electric, hydrogen, or NG. The first two won't reall work for these government workers who drives 100s of miles, but NG would. Also, if you only have to install the fueling points at state yards and federal office buildings (plus city and county), you won't have all the red-tape of putting them at existing fuel stations, which would be a logistacal nightmare. Getting these big government fleets on NG (or for the city cars electricity) will help NG and also take some presure off of traditional petrol.
So, with all of this talk of new supply coming online (shale in TX, UT, CO, ND, PA, WY, etc, B.C. & Alberta, the new LNG terminals, the new pipeline from B.C. (Horn River) to tie into the one in mid-Alberta, the Ruby (from western Wyoming to the I-5), and then the North Slope one to Alberta, there must be some talk about DEMAND. But, there is no talk about demand.
I don't want to use NG for new electic generation, I want nuclear, wind, solar, geothermal, etc., for that.
Maybe we could get a government program to yank out all those old oil furnaces in the northeast and install NG ones?
But, the bottom line is: We need a government mandate for the demand side or we will be stuck under $5.00 for some time.
T. Boone takin' a nap?
On Jul 09 10:36 AM skrangeo wrote:
> Now, at $30k/acre
On Jul 10 10:46 AM axelrod608 wrote:
> skrangeo's comments beg the question - WTF are this nation's "leaders"
> doing by ignoring the situation ?? One would think that LNG for
> auto fuel - and cars that burn it - would be a national priority.
> Unfortunately, outside the box thinkers are in short supply at the
> levels where national policy is made.
>
> This nation has, more than any other problem, a leadership deficit.
> We throw money at problems while alternative solutions are in plain
> sight to the astute observer.
SEE:
NEB takes TransCanada's Alberta gas lines under federal fold
ogjo-media.com/portal/...
On Jul 10 09:06 AM Shale Gas wrote:
> Here's the link to the WSJ story, does anyone know if the pipeline
> infrastructure is already built to bring the gas to the lower 48
> states?
On Jul 11 05:59 PM Bud Wood wrote:
> Awhile back, I ran a car on LPG. Very good except for the supply
> when on the road. A driver has to be very checked-out as to where
> to get a supply when away from a home base. Although a driver can
> find LPG, my guess is that finding a supply of NG to use for auto
> fuel could be more of a challenge than a typical driver will want..
>
Okay, I am not much for conspiracy theories, but I'll give you one:
T. Boone, J. Larry Nichols, and Aubrey McClendon, have banded together and are trying to push NG to $2.50.
Then, they'll get the FEDS to mandate that all oil furnaces be exchanged for NG ones. All new power plants will be NG, no coal or nuclear. And all the aforementioned large government fleets will convert. They can't help it, the price is too darn good.
Then, after the conversions are in place, the cartel squeezes and T. Boone gets his dream of $25.00 per....
Question is: Who'll play those three in the film? Kevin Costern as T. Boone?
On Jul 11 04:39 PM Mark Anthony wrote:
> Philipp:
>
> Don't listen to the nonsense Wall Street propaganda. Here is a web
> page of the EIA detailing recent prices of natural gas for import
> and export as LNG:
> tonto.eia.doe.gov/dnav...
>
> Look the LNG import and export prices. They are way much higher than
> current domestic natural gas price. Now you tell me who is going
> to endure all the cost to import LNG and sell it at only $2 per MMBTU?
> The LNG importation will drop to zero and a large chunk of domestic
> natural gas production will be exported as LNG, at far higher prices.
>
>
> My most favorite investments right now are LNG, palladium (SWC/PAL),
> and shipping (EXM, EGLE, DRYS, TBSI):
>
> seekingalpha.com/artic...
>
>
> I think I really want to call a solid bottom of NG price at this
> point, as now there is incentive to burn natural gas instead of coal.
> See a recent EIA report on that possibility.
>
> On Jul 11 11:02 AM Philipp wrote:
There is clearly NO catalyst for upward movement in the next 60-120 days (IMO) because of weak demand, continued supply, and (most importantly) storage issues. In the next 60-120 days, the physical limitation on natural gas storage (injection pressures, full storage before the injection season is over, etc.) are going to push Henry Hub prices sub $3, probably into the mid $2's, and possibly lower than that.
It's the same situation you see in the Rockies. Excess supply and nowhere for it to go. Remember, there are only 2 things you can do with natural gas production: burn it or store it. The Rockies has too much supply vs. the pipeline capacity to get it out of the Rockies region. You have 6 molecules of gas fighting for 3 molecules of space. The solution? Prices are driven down until 3 molecules "voluntarily" drop out of the equation (read: production is shut in).
This is what is going to happen to spot prices in Aug/Sept/Oct as storage maxes out, injection pressures approach maximum ranges, and the gas has no where to go. Prices will be driven down. This is not going to be permanent. It's not going to be driven down to $2 for the next 12-14 months. But, until the excess storage overhand gets worked off (shut-ins, continued depressed rig count, etc.), there is no fundamental support for a "bottom" right now.
On Jul 11 04:39 PM Mark Anthony wrote:
> Philipp:
>
. Now you tell me who is going
> to endure all the cost to import LNG and sell it at only $2 per MMBTU?
> -carry-trade
>
>
> I think I really want to call a solid bottom of NG price at this
> point, as now there is incentive to burn natural gas instead of coal.
>
A large amount of that exploration, $20k+ acreage was purchased on 2 year leases. With purchases made in the first half of 2008, we're a year into the ticking clock and companies have a lot of leases *they have to* drill so that they can be HBP (held by production).
On Jul 11 05:38 PM Don-n-ABQ wrote:
> Where are they leasing for $30k/acre? I just got an offer in the
> mail for either $300 p/a and a 1/8th RI; or $250 p/a and a 3/16th
> RI.
>
> That is a long was from $30k. Guess my mineral rights are in the
> wrong damn place (Roger Mills County, OK).
>
Crowds make mistakes; it is bad logic to believe otherwise. And yet, it is alluring to bet with the "Big Boys."
A question for you ....what is the spacing required in the haynesville
play? My family leased 3000 acres to CHK. We got 22.5k per acre.
Do you know?
On Jul 09 10:36 AM skrangeo wrote:
> here's the deal with natural gas (and the reason I've made money
> buying/selling puts on UNG)
>
> With the boom in prices came a boom in drilling. And, at the higher
> prices, the exploration plays like the Haynesville were very economic.
> And along with the drilling came a soaring production increase. And
> along with everything else came a HUGE drive up in prices for acreage
> (especially exploration acreage, up from $2k an acre a couple of
> years ago to around $30k an acre in the hottest areas).
>
> As production soared, and demand dropped (economic downturn, mild
> weather), oversupply has become a HUGE issue. The storage of natural
> gas has just literally smashed old records. There is ~30% more natural
> gas in storage right now than the past 5 year average. Simple economics,
> supply >>>> demand = huge drop in prices.
>
> As prices have dropped, many areas have become uneconomic. It’s pretty
> widely known that the breakeven economics for the Barnett is around
> $5 - $5.50/mcf. Right now, it is around $3.45/mcf. Thus, drilling
> programs have been slashed all over. The rig count is down 55% since
> October.
>
> Well, you would think that the major drop in rigs would lower production
> and help the situation. Unfortunately, here is the kicker. These
> new shale plays, being drilled up through the use of horizontal wells,
> are bringing on MONSTER wells. A vertical well in an “average” formation
> might come on at 1 mmcfd. These new Haynesville wells are coming
> on at 15-25 mmcfd. So, one new Haynesville well basically take the
> place of 15 “average” wells. So while the rig count has dropped drastically,
> the wells coming online right now are so much stronger that production
> hasn’t hardly been affected.
>
> If that weren’t bad enough, here is kicker #2: most of that high
> $$$$ acreage was exploration acreage (meaning, no production to hold
> the leases yet). And, most of those leases were 2 year leases. Now,
> if you take a section (640 acres), you only need 1 well producing
> on that lease to hold it. And, at 40 acre spacing, there is the potential
> per section for 640 / 40 = 16 drill locations. Now, at $30k/acre
> and 640 acres in a section, you already have $19 million in sunk
> costs per section. You have literally hundreds of millions (billions?)
> of dollars tied up in non-producing acreage with a shortly expiring
> time clock. If they don’t get at least one well drilled and online
> to hold the lease, they risk losing all of that sunk money.
>
> So, even if wells are uneconomic now, they are still drilling to
> get one well per section online to hold the lease. This allows them
> to have that backlog of the remaining 15 locations so that when prices
> recover, they have access to those reserves. They are willing to
> drill an uneconomic well today so that they don’t lose the lease
> that they have already spent tons of money on. And, since they have
> to keep drilling for this reason, it just continues to add to the
> current oversupply (regardless of prices).
>
> Having said all of that, we are going to start seeing physical limitations
> on natural gas storage (you can’t cram 6 lbs of shit into a 5 lb
> bag). There is already more natural gas in storage in the central
> region than at the peak of last year (2nd week of November). And,
> we still have 3.5 months of storage to go! Yikes! Due to this, the
> price is going to get driven down sharply because there will be nowhere
> for the natural gas to go. Once natural gas prices get driven down
> into the low $2s, companies WILL start shutting in production and
> dropping even MORE rigs. This well help the oversupply get worked
> off, and only THEN will prices start to turn upwards.