Replies to post #54379 on Traders Cooperative

[cy esp]

Nat Gas - I am conflicted and thus very interested in the opinions of technical analysis folks such as GT.

I am a little more familiar with the fundies which are very mixed.

On the positive side, natural Gas drilling has dramatically reduced, so we should see a leveling and then decline in production (supply) as the inventory of drilled but not completed or connected to pipeline wells gets worked through. There seems to be an increase in demand, I have heard that previously shuttered fertilizer plants have been restarted (heavy nat gas users, but not confirmed though). The price spread of nat gas to oil is at the high end of its historic range. BTU equivilency is approx 6:1, historic average is 8:1, and currently we are at 12.5:1 ($50/bbl:$4/mmbtu).

On the negative side for price are concerns about industrial demand, rumors of a flood of LNG heading to the US this summer, and the anticipated uptick in drilling in the prolific Haynesville, Marcellus, Barnett, and Rocky Mountains as soon as any price encouragement is seen which will keep a lid on prices at some level above $4 (I would guess between $5 and $6/mmbtu).

All in all, using the happy family theory, if other energy and commodities have seen the bottom, the nat gas bottom is probably in. But, I would expect it to underperform oil for the next several months or perhaps years as LNG concerns and the pricing lid of the new drilling plays moderate Nat Gas's price increase.

JMO - Cy

[cy esp]

US LNG market may get 2 bcfd summer surge

Comments and strategy are Ed's not mine (Cy)
http://siliconinvestor.advfn.com/readmsg.aspx?msgid=25511862
Sam Fletcher
OGJ Senior Writer

HOUSTON, Mar. 20 -- A 60-day surge of an additional 1.5–2 bcfd of LNG is likely to hit the US market this summer, on top of its baseload LNG supply of 0.7–1 bcfd, said analysts at Pritchard Capital Partners LLC, New Orleans.

"US facilities can probably handle 5 bcfd of LNG, but if imports got much greater than 3 bcfd, domestic producers would likely fight back to defend market share, although exactly what realistic options they would have remains to be seen," the analysts said.

"LNG traffic, all moving northbound through the Suez Canal, suggests that Asian markets are backing away from LNG purchases. A surge in LNG imports to the US in the late spring or early summer is highly likely," the analysts said. "The question is how big will the surge be." US natural gas prices as low as $3/Mcf "are a strong possibility this summer," they said.

"One wild card is that South Korea and Japan could take advantage of low prices before the winter buying season and start to fill up sooner, reducing the supply coming here," said Pritchard Capital Partners. "Three European facilities coming on line in 2009 will help absorb supply as the year progresses." They expect a return to baseload supply levels around September.

Demand from Japan, South Korea, and Spain—the "Big Three" importers of LNG—has fallen this year because the global economic recession, said Pritchard Capital analysts. LNG storage in Spain is above 80% of capacity, and Japan and South Korea are looking to divert some cargoes.

Pritchard Capital analysts earlier reported, "Japan (world's biggest user of LNG) is seeking to divert as many as six cargoes of the LNG from Indonesia over the course of this year as demand slows. Japan is very orderly on how they order LNG deliveries, so they're simply planning ahead. Net effect is supplies shift westward to India and China initially; new supplies soak up demand, then continue to shift further westward, ultimately to the US (OGJ Online, Mar. 16, 2009)."

LNG producers are unlikely to reduce output for two main reasons, said Pritchard Capital after hosting a Mar. 18 conference call with Zach Allen, president of Pan EurAsian Enterprises Inc., a management advisory firm specializing in energy. "First, throttling back on production is said to be technically very challenging. Second, and more important, after stripping out and selling the natural gas liquids, producers such as Qatar have an effective cost on the gas that can be measured in pennies, so transportation, which typically runs $2/Mcf or less, is the main cost," analysts said. "Therefore, LNG can be shipped here at prices below where we are today and still be profitable for the producers."

African producers Nigeria and Equatorial Guinea would have to settle for prices of for $2.50–3/Mcf for May delivery in Asian markets, "making UK and US markets look better and better," said Pritchard Capital analysts. "For the same reason, shipments from Trinidad will likely look toward the US."

They said, "LNG will go to the UK as much as it can as storage there was drawn down by the Russia-Ukraine [gas] dispute earlier this year, but once that is absorbed the US becomes the destination of choice."

During the conference call, the analysts said, "The point came up that if the market really believed that we were going to get the kind of LNG surge being bandied about, should not the forward curve [in the gas futures market] be in a backwardation rather than contango position? The main conclusion to that was we are in unchartered territory and to some extent will have to wait and see what happens as spring then summer approaches."

Contact Sam Fletcher at [e-mail].

********************************************************

So it looks like another 100 BCF or so of additional gas supply headed our way.

The question in the last paragraph is one that I have been asking myself many times, and my answer is that the market is making a mistake here. Putting my money where my mouth is, I've built a pretty large UNG put position, in July & October puts. Originally I wasn't comfortable going out as far as October but when I read stuff like the above I get more confident that prices will not bottom until sometime after July.

I've been buying puts on the price spikes but have yet to add any puts on this latest spike. I will re-assess things Monday afternoon or Tuesday.

[cy esp]

Credit Suisse - Natural Gas May Be Forming Near-Term
snip
■ Some Signs of Coal Displacement: With gas prices now trading below delivered coal prices on the East coast (when adjusting for environmental factors, transportation and differences in burn efficiency, see Exhibit 3), we are hearing anecdotes of
displacement of coal by natural gas (perhaps ~1 Bcf/d impact). We estimate the all-in cost of eastern coal (CAPP) to be $4.50 to $5.00 versus cash gas in the low $4's. While very difficult to quantify, coal displacement can occur for periods of time and is most likely to occur in the Southeast, which is a heavy coal consumer and is also well tied-in to the gas grid. Coal displacement is most likely to see its largest impact during
the shoulder season (April/May), when baseload coal units go through seasonal maintenance. Coal stockpiles at utilites as of February (estimated) are at 56 days, up 15% yr/yr and 29% over the 10-year average so we'd soon expect to see some price
convergence over the summer.
■ Fertilizer Demand Declines May Be Bottoming: Ethane frac spreads have recently seen a reversal in the negative trends in Q4’08 (bottoming at -$1.50 per MMBtu on
12/4/08), and have climbed back to $0.97 per MMBtu as of today (see Exhibit 4). Rising ethane fracs may indicate rising petrochemicals production. On the fertilizer side, it appears that Nitrogen and Urea production has risen from the bottom (natural gas is a key input). With planting season coming soon, its likely that fertilizer production will see some increase in the coming months.
■ LNG Imports Have Fallen Back to Previous Lows: We think that concerns about near-term LNG import rises may be overstated. We estimate that recent imports have fallen back to the ~800 MMcf/d level, which is fairly in line with early this year and inline with a year ago. While we certainly expect imports to rise as we head into summer (2 Bcf/d+), the impact may be delayed for several reasons. For one, storage in Europe
is quite low and it could take several months to rebuild it (Spain, U.K.). Also, the U.K. has recently doubled the size of its main import terminal (Isle of Grain) and has purchased 4 cargoes in recent weeks (the U.K. is likely to have record LNG imports in March). India has also been buying gas in the chemical sector as global gas prices have fallen below naptha (light oil). Another big factor has been the lack of consistency in the operations of existing trains, particularly in Nigeria (running only ~40%), Norway (~75%) and Algeria (~80%). Rises will eventually come as new trains come on-line
(particularly in Qatar) and as an important Japanese nuclear facility (Kashiwazaki- Kariwa) comes back on-line, but it may take until later in the summer for the impact to
be felt




http://www.sendspace.com/file/r454qt
hit the download link at the bottom to load the pdf report.

thanks to Dennis at BDBBR. http://siliconinvestor.advfn.com/readmsg.aspx?msgid=25519286