EIA Natural Gas Inventory: +2bcf. Futures -1.11% to $3.34

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wigit5 Comments (2578)
 
Pure Nat Gas companies have to be on the brink....not sure how they are making money.
13 Dec 2012, 10:36 AM Reply Like

kmi Comments (3847)
 
I'm a big believer in the thesis that a lot of the commodities being delivered in the face of strong supply are a result of loans initially taken against in-ground inventory.

As in, the producers took loans against future delivery of product, and therefore the gas being delivered has already been, effectively, paid for by lenders. The dynamic being that depending on the price determined for the commodity by the lender, in some cases it makes sense for the producer to send the product to the lender - or the 'market' effectively - rather than make payments on the loan; and lenders have more flexibility with the product's price because of their position in the market (in particular in the roles in managing ETFs and similar products), and their ease of access to capital.

So I am not prepared to assume gas companies are on the brink, as you say, because they are just delivering on product already effectively 'sold'.

And I wholly expect them to continue to deliver gas to the market. If you were to figure that loans made against the commodity for example are assuming a price of $4 for the gas, and it's at $3.30, it would make sense to just keep drilling it out, and 'delivering' it to the lender instead of paying the loan.

More detail on this sort of thing: http://on.ft.com/S7Rid2
13 Dec 2012, 11:38 AM Reply Like

wigit5 Comments (2578)
 
Thanks KMI that is very informative.
13 Dec 2012, 12:13 PM Reply Like