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Mark Anthony, is an IT professional and who had a scientific research background before joining the information revolution. Visit his blog: Stockology (http://stockology.blogspot.com/)
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  • Monthly Natural Gas Consumptions Show No Sign Of Fuel Switch 78 comments
    May 19, 2012 1:01 PM | about stocks: UNG, KOLD, BOIL, KOLQ, PCXCQ, ACI, ANR, BTU, ARLP, WLT, WLB, BKH, NC, CHK, ECA

    When you study market supply and demand data for any commodity, you have to take the numbers in their proper context and see the big picture. I find Paulo Santos lacking in that regards. I pointed out to him that utilities are running natural gas turbines only 29% of the time in national average. He would argue that even if utilities keep their natural gas turbines idle for 98% of the time, he would still think that utilities have switched fuel from coal to natural gas.

    I made a chart of natural gas monthly consumption in the electricity power sector, using data from EIA, scaled to uniform 30 days month to get rid of variations of different number of days in each month.

    The label notations are as following:

    • S stands for total supply, dry production plus net import, but not including storage withdraw.
    • D stands for total demand, total gas delivered. It includes all supply and any draw down from storage. Obviously when S < D it is storage draw down. When S > D it is storage injection.
    • P stands for the electricity power sector consumption.
    • R stands for residential and commercial consumption.
    • I stands for industrial consumption.

    Here is the chart:

    (Click to enlarge)

    What can we see from the chart? The bump up of natural gas consumption in the first three months of 2012 was purely due to exceptionally warm weather condition. It is now disappearing as weather returns to normal. The red curve, which represent 2012 demand in the power sector, is clearly trying to return to normal.

    In summer time natural gas usage would be much higher, in comparison.

    There is no massive coal to natural gas fuel switch in the electricity sector, as some would speculate.

    The point is much clear if you look at not just natural gas consumed in the electricity sector, but all supply and demand. See the chart below:

    (Click to enlarge)

    Once again, you have to look at numbers in their proper context. From the above chart, I do NOT see any clear evidence of "massive" fuel switch from coal to natural gas. You would have to use a magnifier to find any switch at all.

    The massive coal production curtailments continued in the latest EIA weekly coal production release. See the chart:

    Click to enlarge)

    The curtailments so far reached 44.03M tons. It is projected to reach 160M tons for the year, more than enough to offset reduction in coal demand in 2012.

    Paulo is still not convinced that his fuel switching thesis isnot supported by data. Let me show him a chart from EIA as is:

    Pacific Northwest Consumption of Natural Gas for Power Generation, 2011 and 2012

    The chart shows NG demand in the power sector returned to normal level as of April and May, as the weather returns to normal. Where is your price driven fuel switch, Paulo?

    This discussion pertains to the following symbols: UNG, KOLD, BOIL, KOL, JRCC, PCX, ACI, ANR, BTU, WLT, WLB, CNX, NC, ARLP, BKH, CHK.

    Disclosure: I am long JRCC, PCX, ACI, ANR, BTU.

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Comments (78)
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  • HandsomeMan
    , contributor
    Comments (10) | Send Message
     
    this is interesting, but i think a lot of utility executives have stated that they're either switching out of coal or that they've seen switching happening already.

     

    also, coal inventories at multi-year highs at these power plants.... we'll need a really hot summer!
    14 May 2012, 02:36 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Handsomeman:

     

    SOME, not a lot of utilities stated that they are cranking up their NG turbines. Southern Company said they run their NG turbines to 70% capacity factor. I am aware of that. But nationwide average for NG capacity is only at 29% utilization rate in February, far below AEP's 70%.

     

    That means most utilities are still sit and wait to see, instead of rush to switch fuel. They know, historically, natural gas price is extreme volatile, so they are not willing to count on the NG price to remain low for long.

     

    Read here:
    http://seekingalpha.co...
    14 May 2012, 02:51 PM Reply Like
  • NatGasMaverick
    , contributor
    Comments (521) | Send Message
     
    Mark,

     

    I present to you and the SA community without comment:

     

    Record Gas Use by U.S. Utilities Fails to Drive Up Price
    Bloomberg; 07-May-2012

     

    http://bloom.bg/KfGXrY

     

    -Mav
    18 May 2012, 09:54 AM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » NatGas:

     

    The article you quoted says "The power companies used 34 percent more gas in February than a year earlier"

     

    That 34% percentage agrees with the data I used to plot the charts. My data shows its 34.87% up year-over-year for February. But from teh chart you can see it was only because last Feb was a low level to compare with. That was NOT record usage of natural gas in the power sector. Record use would occur in July and August. The chart shows it's returning to normal usage now.

     

    Putting real numbers, instead of just a percentage, into their proper perspective, like my charts do, shows that the boost of total natural gas usage is limited.That's why injection is only moderately lower than last year.

     

    Even with only moderate injection change, we can now safely say that peak storage by the fall will reach 3800 BCF, not near the full capacity of 4400 BCF. Read why:
    http://seekingalpha.co...

     

    It's hilarious that natural gas is already up from $1.90/mmBtu to $2.68/mmBtu, a gain of 41% in a month. But they call it natural gas price "failed to drive up"? What is considered a price drive up, then?
    19 May 2012, 11:11 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    The proper perspective, Mark, is to understand that the power market is deeply seasonal and you can't expect February or April to show more natural gas consumption than the summer months EVEN with a lot of switching going on.
    19 May 2012, 11:18 AM Reply Like
  • dnpvd51
    , contributor
    Comments (1986) | Send Message
     
    But you still have not explained why injection levels are lower Year over Year.
    14 May 2012, 04:17 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » dnpvd51:

     

    The second chart I just put in explains the injection. See the top portion, it was total supply (excluding storage) vs total demand. So when the supply line crosses the demand line at the top of the chart it was start of injection. The bigger the gap between the two lines, the bigger the injection. The red lines seem to have a smaller gap this year, so that is why injection is lower.
    14 May 2012, 06:42 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    Lol, and why do they have a smaller gap, Mark?
    17 May 2012, 09:28 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Paulo:

     

    The residential/commercial demand is now HIGHER than last year by 78 BCF/month. Industry demand also gained 10 BCF/month. Supply gained 54 BCF/month. So 31 BCF/week less injection Y-o-Y means the total demand gain is 54 + 4*31 = 178. The NG power gain was thus only 178-78-10 = 90 BCF/month. This is way down from the March level of gaining 205 BCF/month Y-o-Y.
    18 May 2012, 12:30 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    Are you still using your flawed calculations that we've already seen missed the February number?

     

    Oh, yes, I know, you just had to change a number for it all to fit. Don't you see that makes no sense, changing an arbitrary number to still believe the numbers? Don't you see the mental state you're on?
    18 May 2012, 07:03 AM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Paulo:

     

    The EIA weekly number are self-consistent within themselves. It is in how to convert the weekly numbers into the monthly numbers that we had some dsicrepancy. So plus or minus 50 BCF was totally expected in my original projection. I thought something was wrong. But it was not, it was expected discrepancy due to the mismatch of weekly and monthly numbers.

     

    If you trust the EIA weekly numbers 100%, it gives a LESS optimistic estimates of the NG consumption in the power sector, than my charts would show.
    18 May 2012, 09:41 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    I'm happy with the EIA numbers, what they represent and how they fit my overall thesis.

     

    You really, really need to look at those numbers again. Just look at what you're believing in: you're believing there's no huge switch from coal to natural gas due to relative pricing, in the face of an almost 20% drop in coal consumption to make power and an almost 35% rise in natural gas consumption to make power.
    18 May 2012, 09:47 AM Reply Like
  • Marc Klein
    , contributor
    Comments (20) | Send Message
     
    I like your chart Mark. Very interesting. If this year's May weather is similar to last year's, would a figure above 700 BCF invalidate your theory? Personally I am looking for May figure above 750 BCF conservatively. If you are correct, and this figure drops again in May, we should start seeing huge inventory builds starting this week. Unless supply really is dropping off a cliff.

     

    Mark, Do you, or anybody else for that matter, have any comment on Lippman Consulting's monthly dry shale gas production estimate for April 2012? According to the chart linked below, it appears this is their first estimate for a significant decline in dry shale gas production in over two years. While in the past, this chart has showed month over month declines in early winter 2010 and 2011, those production declines appeared to be weather related, ie. extreme cold weather temporarily shut down some production. If Lippman's estimates for May shale gas production show another decline, this could have a major impact on the market. Although we should see below estimate storage injections in the next few weekly storage reports, if in fact, shale gas production is in decline.

     

    This chart appears to show a month over month April decline in shale gas production of approximately 1.5 BCF/day. While vs. last year, shale gas production is still over 4 BCF/day higher. However, since we know that overall US nat gas production is approximately 2.5 BCF/day higher than last. Non-shale gas production is obviously still in decline, something nobody disputes really. If Lippman is in fact correct and shale gas production indeed is in decline, the impact on nat gas prices should be profound. I realize one data point does not a trend make, but thought I would point it out as I have been unable to find anyone talking about this figure.

     

    http://bit.ly/KhC81a

     

    PS. The CEO of Pioneer Natural Resources believes that there are only a couple hundred rigs actually drilling for dry gas. I realize most of these rigs are moving from dry gas to liquids rich plays. And that there is dry gas by-product with these liquids rich plays, however, when rigs are moving from drilling wells that are 90% + dry gas to 5-40% dry gas by-product, eventually there should be a big drop in nat gas production which I believe Lippman might be finally showing is occurring. Link to short article below.

     

    http://bloom.bg/IbGl9V
    14 May 2012, 04:35 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Based on my tracking on the EIA weekly NG update, the supply (dry production plus net imports) peaked in the week ending Jan. 4, 2012, at 499 BCF. It has since dropped to 482 BCF in the week ending May 9, 2012, a 3.4% drop. Not huge but it is pretty evident.
    14 May 2012, 07:03 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    The only thing that would invalidate Mark's theory in his own mind would be a stroke.
    17 May 2012, 09:28 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Marc Klein:

     

    Based on first chart, which is for NG consumption in the power sector, May is the time for it to tick up.

     

    From EIA weekly NG update, May is indeed ticking up, but NOT as much as in the past years. So it is still trying to return to the average curve and slightly ticking up. Based on the frist two weeks. I estimate the May level to be 672 BCF. Not quite at 700 BCF. But it is ticking up from April level as the weather warms up.
    14 May 2012, 06:49 PM Reply Like
  • bitter-bob
    , contributor
    Comments (261) | Send Message
     
    An easy way to put this silly argument to rest once and for all is to do a direct comparison on NG vs. coal usage in the electricy power sector.

     

    In 2010 the electricity sector consumed 975,052,000 short tons of coal. In 2011 the electricty sector consumed 928,558,000 short tons of coal. This is a reduction of -4.8%.

     

    In 2010 7,387,285 MMcf of natural gas were used in the sector. By 2011 this increased to 7,601,924 MMcf for an increase of 2.9%

     

    Last time I checked, +2.9 > -4.8

     

    Ergo, natural gas is replacing coal in electricity power generation.

     

    QED
    14 May 2012, 09:55 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Bitter:

     

    OK so the increase of natural gas in the power sector was 7602 BCF - 7387 BCF = 215 BCF. In generating electricity, 15 BCF of natural gas is equivalent to 1 million tons of coal. So the natural gas displaced is only 14M tons. Big deal. The bigger thing that affected coal demand in 2011 was the mild summer. Not too hot.
    15 May 2012, 01:19 AM Reply Like
  • daveog
    , contributor
    Comments (177) | Send Message
     
    From Energy Musings:

     

    "We attended a presentation by an energy consultant who worked for many years for American Electric Power (AEP-NYSE) that is the nation’s largest operator of coal-fired power plants. As one would expect, many of these plants are old, although they continue to function well. Most of the focus on the new EPA emission rules dealt with their application to new generation sources, meaning they are applied to newly constructed plants. However, when existing plants experience equipment-related downtime, the repairs and modifications can cause the plant to become subject to “new source” reviews and thus, these “new source” emission standards. According to the presenter, his former AEP colleagues suggested to him that they had established a $5 million threshold for capital investments that would determine whether the plant would be shut down rather than repaired. The presenter commented that he could not think of any significant part of a coal-fired power plant that wouldn’t exceed this threshold when, and if, critical equipment broke. In his view, America will experience faster erosion in coal-fired power generation capacity than expected by either regulators or company managements. For that reason, he was positive about the longer term outlook for natural gas demand, meaning he also sees higher gas prices down the road."

     

    Could have implications for coal usage...no?
    15 May 2012, 08:38 AM Reply Like
  • Titan06
    , contributor
    Comments (303) | Send Message
     
    "his former AEP colleagues suggested to him that they had established a $5 million threshold for capital investments that would determine whether the plant would be shut down rather than repaired."

     

    so this was a suggestion from a friend at AEP and in No way translates over to all coal fired generation. I agree older small coal plants will be phased out but large ones will be around for along time to come.
    15 May 2012, 01:11 PM Reply Like
  • Titan06
    , contributor
    Comments (303) | Send Message
     
    are there other power burn charts than the just the north west

     

    http://bit.ly/AguyqD
    17 May 2012, 07:47 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » A note on the numbers used in the charts.

     

    I converted all monthly figures to a standard 30 days month basis. This is so that the month to month changes reflect the real changes, not the variation of number of days in a month.
    18 May 2012, 01:19 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    You should also add a note saying that these calculations have already missed the February number and can't be trusted going foward from there.
    18 May 2012, 07:04 AM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Paulo:

     

    Nonsense. I made projection for total supply, power consumption, industry consumption, residential/commercial.

     

    My projections for the total, and for the industrial were spot on. Power consumption and residential/commercial each missed by about 50 BCF, on the opposite sides, one is higher one is lower. It could be a normal discrepancy due to weekly to monthly conversion, or could be they adjusted some resideitial to power sector. My method is valid as long as EIA's weekly update is credible. I have no reason to believe they are not credible.
    18 May 2012, 09:45 AM Reply Like
  • NatGasMaverick
    , contributor
    Comments (521) | Send Message
     
    "Coal remains the leading source of power in the U.S., but has fallen to 37 percent of U.S. electricity generated during January and February, combined, from 46 percent a year ago, Energy Department show.

     

    “For the first time since the 1970s, we’ve seen coal’s share of energy production fall below 40 percent,” David Herr, leader of Duff & Phelps (DUF)’ energy and mining practice, said during a March 28 webcast. In 2010, “coal was sitting at 50 percent, where it had been for the last decade.” "

     

    http://bloom.bg/KfGXrY
    18 May 2012, 09:56 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    Mark would easily explain to you that coal is still being used, so there can't be such a thing as coal getting used less. :-)
    18 May 2012, 09:59 AM Reply Like
  • NatGasMaverick
    , contributor
    Comments (521) | Send Message
     
    "To make a dent in gas inventories, the power industry will need to burn at least 4.5 billion cubic feet more per day on average for the year above 2011 levels, according to data compiled by Bloomberg New Energy Finance.

     

    That is “absolutely unprecedented, but not out of the question,” Charles Blanchard, fossil fuels analyst for Bloomberg’s New Energy Finance unit, said in an e-mail. "

     

    http://bloom.bg/KfGXrY

     

    If you need a visual...the Astrodome is 1Bcf. Reliant Stadium is 1.9Bcf.
    18 May 2012, 09:56 AM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » NatGas:

     

    That statement is wrong. The 4.5 BCF a day more burn needed is correct. But it is total demand and does not have to be all coming from the power sector. As of May, 2012, the residential and commercial demand not only recovered to 2011 level, but is actually HIGHER than the 2011 level by 1.65 BCF a day. Mean while industry demand is higher than 2011 level by 0.33 BCF a day. So the power demand only needs to be 2.5 BCF a day higher than the 2011 level is good enough.

     

    But arguing about the points is moot. The weekly storage data already tells us that it is ALREADY making a dent in gas inventory. The latest weekly injection is 31 BCF less than year ago, or 4.43 BCF a day less than last year. Storage will peak in the fall at normal peak level: 3800 BCF to 3850 BCF, as I predicted:

     

    http://seekingalpha.co...
    19 May 2012, 11:57 AM Reply Like
  • NatGasMaverick
    , contributor
    Comments (521) | Send Message
     
    Mark - do you have ANY experience in the power and gas markets?
    21 May 2012, 08:57 AM Reply Like
  • NatGasMaverick
    , contributor
    Comments (521) | Send Message
     
    http://bit.ly/KfI4rM

     

    US GAS: Futures Drop As Inventory Build Is Bigger Than Expected

     

    Record high stockpile for this time of year; +40.9% vs year ago
    18 May 2012, 09:59 AM Reply Like
  • NatGasMaverick
    , contributor
    Comments (521) | Send Message
     
    http://yhoo.it/Lju8ln

     

    "The natural gas surplus and sub-$2-$2.50/MMBtu prices are expected to step up the switching of generation facilities from coal-fired to gas-fired, according to FERC's "Summer 2012 Energy Market and Reliability Assessment" report, which was presented Thursday at the Commission's regular meeting, Natural Gas Intelligence reported. "

     

    "Pointing to the possible problems this summer, FERC staff said that twin units of Southern California Edison Co.'s 2,200 MW San Onofre Nuclear Generating Station (SONGS) in San Clemente, CA, which have been shut down for three months, warrant close attention if they should remain offline during high-load periods this summer. "
    18 May 2012, 10:00 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    Mark will easily explain to you that these FERC staff are lizards from outer space that say these things to conceal their stealing of natural gas, as well as their deep distaste for coal.
    18 May 2012, 10:04 AM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » My number used in the charts are highly credible and consistent as they project the EXACT change of storage number.

     

    Based my numbers, from Dec to Mar., in the 4 month:
    1. The supply side is up 356 BCF Y-o-Y
    2. The Demand side is down 425 BCF Y-o-Y.
    3. That's a total down 781 BCF, in 120 days (4x30).
    4. Convert to 126 days that's down 820 BCF.
    5. The 126 days (18 weeks) down down last year from 11/26/10 to 04/01/11 was 2226 BCF. Thus I projected a reduction of 820 BCF from that number, or 1406 BCF draw down, from 11/25/11 to 3/30/12 (again exactly 18 weeks).
    6. The actual 11/25/11 to 3/30/12 draw down was 1379 BCF. My projection was 1406 BCF. The discrepancy is only 27 BCF.
    7. That discrepancy is only 1.96% of teh total drawn down. The number was tallied up from 18 weeks of weekly projections. So that means in each of the weekly number the error is only 1.5 BCF.
    18 May 2012, 10:03 AM Reply Like
  • NatGasMaverick
    , contributor
    Comments (521) | Send Message
     
    Hey Mark...even CHINA is beginning to switch from coal to gas!

     

    http://bit.ly/KXSkXz
    18 May 2012, 10:11 AM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » NatGas:

     

    Don't you know that the Chinese government LOVES to talk about wishful things? China is ruled by communists. Communism is a very wishful thing to begin with. How nice it would be that every one's demand can be absolutely meet fully, and every one gets to choose whether he/she likes to work or not. That would be great. That has been humanity's biggest wishful thinking. It is called communism.
    18 May 2012, 10:22 AM Reply Like
  • veloski
    , contributor
    Comments (5) | Send Message
     
    Mark
    Gas is going up and the whole coal sector is still declining. According to your lofty charts things should be picking up - Are you trying to prove something which is just not going to happen. The coal sector is laden with agent processing plants which need desperate repair and nobody is willing to spend money to doing so.
    I wish I'd never listen to your promising blogs.
    18 May 2012, 10:39 AM Reply Like
  • NatGasMaverick
    , contributor
    Comments (521) | Send Message
     
    veloski - Mark is an IT professional. To my knowledge, he has not worked in energy lending, energy IB, commodities trading, commodity finance, or risk management. He is not an equity (or debt) analyst. He is, however, one of the best sources of comic relief on SA.
    18 May 2012, 10:49 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    I've just submitted an article saying it's time to buy coal companies. Might take some time to get published.
    18 May 2012, 10:58 AM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Veloski:

     

    The market is simply not rational. The NG sector is slow in curtailing production. The supply in NG so far is still up 2.6% Y-o-Y and is dropping, VERY slowly. The total NG demand is only slightly higher than last year. Yet NG has rebounded strongly since April 19. That was because the market expected the storage to fill up by fall, and now it looks clear it will NOT fill out, just as I predicted:

     

    http://seekingalpha.co...

     

    So my prediction on natural gas that storage will NOT reach full, is already vindicated. My other prediction that coal is much more bullish than natural gas, will take a little longer to fulfill. But it will exceed my expectation.

     

    The coal industry's production curtailment, unlike natural gas, is SWIFT and massive. It's now several times more than needed to bring supply/demand back in balance. This will cause a supply disaster by the summer.

     

    Keep in mind that coal production is evenly distributed througout the year. But coal consumption is NOT. It has seasonality variation. During summer time you burn coal FASTER than they can produce. Therefore the sector should be stockpiling coal during off seasons so the supply is adequate during peak power seasons.

     

    But this year, both the utilities AND the coal producers are forced to MASSIVELY reduce their inventory to preserve cash liquidity. Utilities are squeeze due to super low electricity price. They can not afford to purchase and stockpile coal even though the price is low. They are using down the inventory. The coal producers, worried about their liquidity, also can NOT stockpile coal. They cut production and sell down the existing coal inventory.

     

    So you end up with a situation NO ONE stockpile any coal. Bingo when the summer comes, you suddenly find yourself in a situation that there is ZERO inventory any where, and producers can't catch up with the demand however hard they try. That will send coal price fly!

     

    I am writing up an article to discuss that.
    18 May 2012, 11:55 AM Reply Like
  • Titan06
    , contributor
    Comments (303) | Send Message
     
    im backing up the truck, looks like you were right we got a panic mode sell going on. But really its happening for no reason as nat gas has changed direction fundamentally and is heading higher from here on out.

     

    ANR is at a all time low, once in a decade opportunity in my opnion
    18 May 2012, 11:59 AM Reply Like
  • NatGasMaverick
    , contributor
    Comments (521) | Send Message
     
    "They are using down the inventory"
    "That will send coal price fly!"

     

    I wish I had a "WTF" emoticon to paste here.

     

    Utilities are going to continue to be under reguatory pressure to operate a cleaner generation fleet. Unsustainable capex and a reduction in PUC support for cost recovery will result in utilties continuing the coal-to-gas conversion and the shutting down of old, small, and uneconomic plants. Expect construction of gas-fired plants to continue.
    18 May 2012, 12:28 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » NagGas:

     

    Fact of the matter is electricity spot is selling for only $7.29 per MWH, or less than a penny per KWH. It is far lower than the worth of the fuel, coal or natural gas.

     

    Why would some one be so stupid to buy something more expensive to generate something much cheaper? Will they then turn around to use the cash to buy more fuel they just consumed, and losing more money burning fuel to sell cheap electricity. Aren't they better off just leave the fuel there and shut down the generators?

     

    Only explanation is they desperately needs immediate cash. Thus they have NO MONEY to replenish the coal stockpile. ZERO inventory will ensure a super bull cycle in coal in one or two month.

     

    We will see once summer arrives.

     

    How else do you explain electricity at cheaper than a penny? Electricity is promptly generated and immediately used. There could never be a supply and demand imbalance, as generators can be shut down and turned on.
    18 May 2012, 02:19 PM Reply Like
  • NatGasMaverick
    , contributor
    Comments (521) | Send Message
     
    Mark,
    What location are you seeing spot power at $7.29? Peak? Off-peak? I ask, because it is relevant to the power generation fuel source for the region. Per today's Megawatt Daily, Mid-C peak prices posted between 4.00-9.25/MWh (wholesale prices). Offpeak Mid-C posted between $-1.75
    and $1.75. COB offpeak was $2.50-3.25.

     

    -Mav
    18 May 2012, 04:24 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » It's on bloomberg, Mid-Columbia firm on peak spot price:

     

    http://bloom.bg/HbuGnA

     

    This is the quote:
    ELECTRICITY ($/megawatt hour)
    PRICE* CHANGE % CHANGE TIME
    Mid-Columbia, firm on-peak, spot 11.84 3.74 46.17% 13:35

     

    It is now up $3.74 from yesterday to reach $11.84 per mega-watts-hour. Yesterday May 17 it was $8.10. I remember seeing $7.29.

     

    That's a super low electricity price, less than a penny per KWH.
    18 May 2012, 05:24 PM Reply Like
  • dnpvd51
    , contributor
    Comments (1986) | Send Message
     
    What do you think about BTU?

     

    The thing is really dropping. Any danger of these guys going bankrupt?

     

    It is interesting that the NG producers keep producing to maintain liquidity while the coal producers cut production to maintain liquidity.
    18 May 2012, 07:25 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » dnpv51:

     

    The two industry is different. The coal industry can invent coal. Coal inventory ties up liquidity so they cut production to reduce inventory to unlock inventory.

     

    But natural gas company never invent natural gas to begin with. Once a well is finished it just continues to flow by itself. So gas flowing gives them cash liquidity. They would keep producing if they want cash liquidity, and promptly sell the gas at whatever price. They do promptly reduce drilling activity as drilling eats up cash liquidity.
    18 May 2012, 07:53 PM Reply Like
  • dnpvd51
    , contributor
    Comments (1986) | Send Message
     
    What do you mean by coal industry can invent coal?
    18 May 2012, 09:05 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » I mean invent as in the word inventory. I mean keep something in inventory.
    19 May 2012, 01:47 AM Reply Like
  • NatGasMaverick
    , contributor
    Comments (521) | Send Message
     
    Mark - I suspected it was Mid-C you were quoting. Do you know what the dominant fuel source for power traded in the Northwest and at Mid-C is? There is a reason why those prices are so low. You should do a little more home work. I'll give you a hint...the marginal fuel is NOT coal.

     

    For representative priced, you should be looking at PJM, ERCOT, Southeast(VACAR, Southern, Florida, TVA, Entergy).

     

    Also, these prices are wholesale prices and not what you and I would be paying. As a point of reference, I am paying about $0.085-0.095/kWH for retail supply in Houston.

     

    -Mav
    21 May 2012, 09:07 AM Reply Like
  • mephistopheles
    , contributor
    Comments (56) | Send Message
     
    Mark

     

    You are wrong about inventories NOT building at the miners. Look at PCX- Inventory up to 150 million from 100 mil last q. Listen to JRCC conference call- he clearly explains inventory has built up at the miners but they reduced train shipments 20%

     

    The good news- again ref JRCC call- they think inventory build ups stopped early April.

     

    While this whole gas versus coal argument is silly, and perpetuated by two trading positions more than logic, the real merits of coal and NG stand on their own. Coal dynamics are extremely bullish when considering international markets. India-China and Europe have little NG in place. Solar and wind are a decade from reality AND BTU just said they expect 385 GW new coal power to be added decade.

     

    Coal is super bullish right here- the question is can JRCC and PCX avoid liquidity traps in the 3-9 mon time frame.

     

    Thats it/
    19 May 2012, 02:19 AM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Mephistopheles:

     

    Of course I have noticed that PCX's inventory increased in Q1. That was data up to end of March, 2012. My point is any reasonable coal executive would worry about inventory tying up liquidity, and thus take measures to sell down inventory by cut production. They further curtailed production after week 9 and after week 12.

     

    My opinion is that further pushing down of coal price in the last few days defies logic and defies the fact that natural gas already rallied strongly for one months now, and the fact that there are massive coal production curtailments, in contrast to natural gas supply is still higher than year go figure by 2.7%.

     

    The recent dramatic coal price push down must be due to a few players, most likely the utilities, are squeeze in liquidity and are desperately trying to get rid of their coal inventory to raise some cash, at a time when they SHOULD replenish coal stockpiles.

     

    Depleted coal stockpiles are extremely bullish. It sets up a perfect stage for panic buying, when the depressed selling is done.

     

    Let's see how stressed utilities could be. In 2011 USA generated 4.1 trillion KWH of electricity. They were paid about 7 cents a KWH wholesale price. That's $287 billion revenue. Today, even the firm on peak, day ahead houston spot is only 3.3 cents per KWH. If this lasts the revenue of the whole industry is reduced to $135B. A reduction of $152B worth of revenue for the utility industry has got to create some very serious cash liquidity problem for them.

     

    The electricity power sector should be the last sector to see depressed end product (electricity) price. In this sector the supply and demand is instantaneously balanced, because you can not store electricity. There could never be an over-supply killing the price. They can always promptly shut a few generator units down if there was an over-supply. Theoretically electricity price should always reflect the fuel cost plus a moderate profit margin. For this sector to be selling electricity BELOW fuel cost, is unthinkable. But it happened, it must imply that they are squeezed on cash.
    19 May 2012, 10:57 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    Mark, you still need to brush up on how electricity is priced. Lower demand would, in the power generation world, guarantee lower electricity pricing (for the same power generation fleet) because a lower cost supplier would be the marginal supplier for the lower supply needed.

     

    Anyway, electricity demand is not what's been driving power prices lower - what's been driving them lower is natural gas, because natural gas is usually the marginal fuel in the dispatch order, so if it goes lower everybody get a lower power price.

     

    Anyway, it's going higher now so power prices will go up as well.
    19 May 2012, 11:02 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    The dispatch switching is not silly or perpetuaded by trading positions in my side. It's simply a reality - it was what made natural gas's rally possible. And it is what in due time will allow coal to get out from the floor as well.
    19 May 2012, 06:37 AM Reply Like
  • mephistopheles
    , contributor
    Comments (56) | Send Message
     
    Dispatch switching is a PIECE of the coal reality. What matters is aggregate demand and prices which are affected by a bunch of other factors- some super bullish and others not. The notion that the energy mix of a country will static is ridiculous. So why harp on this one factor unless you simply want to justify a trading position- in which case it is perfectly understandable.

     

    - Thermal coal price/demand in the US is surely affected by NG prices BUT as is repeatedly pointed out- and ignored by shorts- coal miners like ANR- the largest met coal miner in US and PCX- 1/3 met coal have the highest met coal prices in a decade to hang on to,Tata India is adding a million new tonnes of new steel capacity in 12 months.
    "Global steel use will rise 3.6 percent this year, less than last year’s 5.6 percent increase, as European demand contracts and Chinese use slows, the World Steel Association said on April 27. "
    -Coal production cuts of 140 million tonnes are unprecedented -surely that affects supply demand and prices
    - BTU projects oevr 386 GIGAwatts new power from coal in India and CHina. SO overseas demand is ripe and growing.
    - Mild weather patterns affected coal inventories far more than simply swtching.

     

    We are trading coal miners- not coal spot. SO it is clearly disingenuous to posit that NG switching in destroying coal while all these other powerful forces are completely ignored.

     

    I know- hard to keep a healthy global perspective when one is invested :)
    19 May 2012, 09:51 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    Switching is the reality that's keeping coal depressed and that's allowing natural gas to get out of its funk. The other natural gas demand components are stabilizing after a mild winter, industrial consumption is growing slowly. The supply side has stagnated (at levels that still compare positively to last year) and has a good chance of dropping.

     

    Coal will eventually be helped by the dynamics taking place in the natural gas market. Natural gas for all purposes has bottomed almost 1 month ago and climbed more than 40% since then.
    19 May 2012, 10:27 AM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » My data is accurate that it matches the storage numbers perfectly.

     

    During the 4 months from Dec. to March, the numbers in the brackets are changes from year ago:

     

    Month Total_Supply Total_Demand
    Dec-11 2119.758387 (+93.424839) 2433.71129 (-164.955484)
    Jan-12 2122.773871 (+75.824516) 2644.727158 (-140.882197)
    Feb-12 2112.664138 (+123.578424) 2665.25521 (+47.978067)
    Mar-12 2086.453891 (+63.248085) 1929.766783 (-229.241282)
    Total_Supply_Gained: (+356 BCF) Total_Demand_Lost:(-487 BCF)

     

    So supply gained 356 BCF, demand lost 487 BCF. Combined the storage drawn down should drop by 843 BCF.

     

    The 18 weeks drawdown 11/26/10 to 04/01/11 was 2226 BCF.
    The 18 weeks drawdown 11/25/11 to 3/30/12 was 1379 BCF.

     

    The difference is 847 BCF. My prediction is 843 BCF.

     

    Perfect matching!

     

    Any one still question my numbers and charts?
    19 May 2012, 12:33 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    Was that before or after you changed the sign in one of the numbers?
    19 May 2012, 12:42 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Paulo:

     

    The change of the sign of one of the numbers does NOT affect the above numbers. The change occurs at a DIFFERENT column of data. In the above I was using the total supply and total demand column of numbers. With or without the change I previously discussed, the total supply and demand number does not change a single bit at all.

     

    Actually I regretted to have made the change I mentioned. The change I made destroys internal data consistency. When I change everything back to original EIA percentage numbers, the data is internally consistent.

     

    The two Feb numbers that I predicted that came out to beslightly inconsistent with EIA monthly number: power demand, and residential demand. One was 50 BCF too low and another was 50 BCF too high, can be explained by whether a small chunk should be counted as residential or power demand.

     

    The internal consistency of the data set, as well as they match precisely the storage numbers, proves that my data analysis using the EIA weekly update numbers, is effective and valid.
    19 May 2012, 01:09 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Paulo:

     

    Having put the data credibility issue behind as I stated above, you can now stop the fuel switch nonsense now. Look at the second chart. The NG power demand show a gap between 2012 and 2011. That gap first widened and then narrowed after March. The gap is trying to close down completely. This first widen then narrow behavior tells us it was due to seasonality, not due to price driven fuel switch. If it was due to fuel switch, it should have WIDENED instead of narrowed in April and May. We know natural gas reached the low in April 19. Shouldn't the switching be maxinum in April?

     

    Fuel switching may exist in a few utilities. But it is scattered. Most utilities sit and wait to see. That's my point.
    19 May 2012, 12:41 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    You need to study how the power plants are allocated to produce power, and how power is priced, Mark.

     

    Read this stuff:

     

    http://bit.ly/IgkzBu

     

    http://1.usa.gov/K14WNg
    19 May 2012, 01:16 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Paulo:

     

    I don't need to know the precise details how the industry plan the operation of their power generation units. Knowing the following is enough:

     

    1. In average they dispatch 54% of coal units and only 29% of NG units. (dropped to 25.8% in April, 2012). That is not an indication of fuel switching to NG.

     

    2. The EIA monthly electricity generation number, up to Feb, does NOT support your notion of fuel switching. The NG power demand was higher year over year,but this gas is narrowing down in April and May.

     

    3. The EIA weekly update indicates a week-over-week DROP of NG power demand. Normally at this time of the year, week-over-week should see INCREASE, from March to Mayand to the summer.

     

    4. The NG storage number certainly does NOT support a massive fuel switch. Storage injection is only moderately lower than last year. The supply is only 2.7% higher than last year.

     

    5. People wondered loudly why massive dispatch switching failed to drawn down the storage more and failed to push up price more aggressively:
    http://bloom.bg/KfGXrY
    The answer is there is NO massive fuel switching. My data and my charts tells the true story. They are consistent with EIA storage numbers and consistent within themselves.
    19 May 2012, 03:29 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    You DO need to know how the industry works, or else you keep saying the same irrational things over and over, and it deeply detracts from your credibility regarding everything else.

     

    You don't need to know it in great detail, but this dispatching process is essential, you DO need to understand it.

     

    The dispatch swithing has a HUGE impact on natural gas. It's the reason why it manages to go up at this point. Close to -20% coal volumes and +35% nat gas usage for power is massive any way you look at it.
    19 May 2012, 04:07 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Paulo:

     

    Wrong! The May natural gas usage in power sector is only up 14% from last May, not 35% any more.

     

    It will be 659 BCF versus 577.755 BCF last May.

     

    Back in March. it was up 44% Y-o-Y: 694 BCF vs 482.693 BCF last March. You see how percentages are misleading!
    20 May 2012, 02:26 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    We've already seen how your calculations on that regard were wrong for February, and have no reason to believe those for May will be any better (you, however, seem to have learned nothing from mssing February).

     

    Every weekly number showed natural gas usage for power generation up more than 20% from last year, it's not very likely that the monthly number will show up as up just 14% (unless it slows down a lot for the remainder of the month)...
    20 May 2012, 06:32 AM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Paulo:

     

    Here is my score board based on my original projections:
    http://bit.ly/JI4xjB

     

    For Feb, 2012
    My projection (actual), discrepancy
    Total Supply: 2037 (2042), off by -5 BCF, or -0.245%
    Total Delivered: 2475 (2486), off by -11 BCF, or -0.44%
    Power Demand: 593 (649), off by -56 BCF, or -8.6%
    Residential Demand: 1111 (1059), off by +52 BCF, or +4.9%
    Total Demand: 2321 (2303), off by +18 BCF, or +0.78%

     

    Note total supply = dry production + net imports. You have to get those monthly numbers from EIA and then add up to get monthly total supplies.

     

    That is pretty good result. Especially of they mis-counted a big chunk of residential demand (55 BCF) as power demand, that explains everything.

     

    I think most of the weekly data are credible, a few number might messed up due to artificial error. But then on what token do you trust the year-over-year percentages more than the week-over-week numbers, Paulo? Just because they fit your opinion better?

     

    The May power demand is only up 14% Year-over-year, even the year-over-year percentages indicate that!

     

    Note my original projections were extremely accurate on total supply and total delivered. As far as NG supply/demand, what matters is total supply and demand, not sub-categories of demands.
    20 May 2012, 01:52 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    Supply would always miss by little since it's quite stable.

     

    Demand, and specifically power demand, is where it's at. Your numbers were way off, and so your May numbers might also be way off. Saying that you just have to change a sign or reclassify residential demand doesn't cut it.

     

    As for May, there are the y-o-y numbers we have
    U.S. Consumption - Gas Week: (5/9/12 - 5/16/12)
    Power 26.82%

     

    (unfortunately http://bit.ly/K37ETl is giving me an error)

     

    U.S. Consumption - Gas Week: (4/25/12 - 5/2/12)
    Power 41.30%
    20 May 2012, 02:05 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » My original total delivered (total demand) did not miss at all. This is a number that varies quite a lot (was 2733 in January and 2486 in Feb). This projection came out to be missing only 11 BCF out of 2486. That is pretty precise.

     

    Another evidence of data consistency. I take
    Total_Delivered * 0.935 = Total Consumed (Power + Resident + Industry)

     

    0.935 is because part of the gas delivered is used for plant and pipelines so only 93.5% end up reaching end user's hands.

     

    The discrepancy for each weak is consistently to no more than 5 BCF discrepancy for each week, for the week of 3/21/2012 till today, the discrepancies were all below 1 BCF with no data modification!!! I will publish the data soon.

     

    Paulo:
    If you are still not convinced, check my main blog above again. I just added a chart from EIA, showing electricity NG demand has returned to the 2011 level. What do youthink of that?
    20 May 2012, 02:41 PM Reply Like
  • NatGasMaverick
    , contributor
    Comments (521) | Send Message
     
    Paulo - totally agree with you.
    21 May 2012, 09:11 AM Reply Like
  • NatGasMaverick
    , contributor
    Comments (521) | Send Message
     
    Mark,

     

    If you are as smart as you think you are about power, gas, and coal pricing (and the fundamentals behind them), I recommend you take your black box and join a quatitative analytics group at an energy trading outfit. Let me know if you need contacts. I'll be happy to connect you with some of the brightest guys in the industry. You name the firm, and I'll get you a good contact.

     

    -Mav
    21 May 2012, 09:15 AM Reply Like
  • themarketnews
    , contributor
    Comments (42) | Send Message
     
    Big buying in Peabody today around 2:10 at $23.30s
    22 May 2012, 05:59 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » My second chart here predicted that NG consumption in the power sector PEAKED in February and was down in March.

     

    Today the EIA data confirms that March is indeed down from February. Here is the link:
    http://bit.ly/xuv4bq

     

    On a per day basis, the March figure of NG generated electricity is down 5% from February level. (Note there were 29 days in Feb and 31 days in March, when you calculate the numbers).
    29 May 2012, 05:45 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    Do you know what seasonality is?
    29 May 2012, 05:46 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Paulo:

     

    Do you recognize the last chart I added a few days ago. It was taken straight from EIA web site. Do you understand what it tells?

     

    It tells you the NG power demand is BACK TO NORMAL. No more fuel switch. None! Totally gone! Disappeared, as of May.

     

    That is EIA chart, not my own. I am just showing it to you. Don't blame me for tweaking data. But I bet you can not read a chart and understand what it is trying to tell you, Paulo. It tells you no more fuel switching!
    29 May 2012, 06:04 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    What, the switching you say never existed, has now disappeared?

     

    1) I don't think it disappeared, the weekly numbers are still supporting the switch, given how much demand for power production keeps increasing yoy;

     

    2) Yes, if the natural gas prices move high enough it CAN disappear. I sure hope that happens.
    29 May 2012, 06:07 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Paulo:

     

    I did not say there was zero switching. I acknowledge that SOME utilities did switch as they claimed, like Southern Company. I insisted that such switching is NOT massive, not wide-spread, and it was seasonality related, not price driven.

     

    Now thet data shows that the limited switching started to WEAN in March and in April, when NG price was still dropping at the time. You knew NG price did not bottom till April 19.

     

    The most important thing is it shows my analysis using the EIA weely update number, is legitimately. It correctly shows that NG demand in power sector was down in March and down again in April We now confirmed that it was indeed down in March. We will get the confirmation in April a month from now.
    29 May 2012, 06:19 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    Well, then "widespread" and "massive" is a matter of opinion. I'd say anything that moves natural gas consumption for a purpuse at a +39% year-over-year rate is "widespread" and "massive".

     

    I guess you simply don't view it that way.
    29 May 2012, 06:20 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Paulo:

     

    Sorry the March-over-March number impressed you only because the last March was a particular LOW number. On a per day basis average 2011 NG power demand was 34% above the average in March, 2011. That was how low that March was.

     

    If you are telling me 39% Y-o-Y for March, it is only 3.7% higher than the 2011 yearly average. The fact of the matter is utilities were NOT unleasing the full capacity of NG power units. Far from it.

     

    By next month the high percentage you saw will disappear, because April, 2011 was a much higher level to compare with. April 2011 was 12.6% higher than March 2011. And April 2012 is 5.23% lower than March 2012. You can do the math. It will be only 17% up Y-o-Y in April.
    29 May 2012, 06:48 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (19000) | Send Message
     
    So November, December, January, February, March, and perhaps April and May were particularly low numbers, is that it? How it compares to the 2011 yearly average is damn irrelevant.

     

    April 2012 will also be over April 2011 (which is all that matters), because the weekly numbers were up strongly.
    29 May 2012, 06:56 PM Reply Like
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