Monday, January 28, 2008

Jan 25 Summary - Natural Gas is $7.98/K

Oil futures jumped back above $90 a barrel, as recession worries that pulled prices lower in recent weeks faded some.

News that Chinese oil demand grew by 6.4 percent in December, the highest rate in months, contributed to oil's advance. The Fed's surprise rate cut this week probably helped support the price of oil as well, since rate cuts tend to send the dollar lower. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.

Light, sweet crude for March delivery rose $1.30 to settle at $90.71 on the New York Mercantile Exchange after rising as high as $91.38.

February heating oil futures jumped 4.28 cents to settle at $2.5191 a gallon on the Nymex, while February gasoline futures added 3.54 cents to settle at $2.3182 a gallon. Heating oil and gasoline prices were supported by news that Valero Energy Corp.'s 255,000 barrel a day refinery in Aruba was shut down due to a fire.

Natural gas rose 18.1 cents to settle at $7.983 per 1,000 cubic feet.

Peabody Takes Stake in Coal-to-Gas Company

Coal producer Peabody Energy Corp. took a minority stake in GreatPoint Energy Inc., which licenses a technology to convert coal, petroleum coke and biomass into ultra-clean pipeline quality natural gas.

Peabody did not disclose the financial terms of the investment.

Peabody said GreatPoint Energy uses a single-stage catalytic gasification process to create natural gas that is 99.5 percent pure methane. It can be transported across North America using the existing natural gas pipeline infrastructure.

Cambridge, Mass.-based GreatPoint said it will develop coal-to-natural-gas facilities with Peabody near its Powder River mines in Wyoming, which produce more than 100 million tons of coal a year.

Coal Shares Stay Hot

Shares of coal producers climbed again, with Consol Energy Inc. hitting a new high of $76.25. The stock is up over 20 percent since Tuesday. Alpha Natural Resources has had a similar climb. Peabody Energy, Massey Energy and Arch Coal all gained around 15 percent over the last four sessions.

Investors are flocking to coal as spot prices rise, international demand heats up and supply concerns grow. Widespread flooding has slowed, even halted, production in Australia and South Africa _ major sources of coal for Asia and Europe. The Financial Times reported that BHP Billiton Mitsubishi Alliance, one of the world's biggest exporters of coal used to make steel, declared "force majeure" because of disruptions at its Australian operations. "Force majeure" is declared when extreme events prevent fulfillment of contract obligations.

Rio Tinto and Xstrata also reported coal production problems in Australia. Production losses are estimated in the hundreds of millions of dollars. Some analysts are also concerned the production delays will affect annual contract prices.

China Halts Coal Exports

Weather is causing coal problems in China as well. The government suspended coal exports after the coldest, snowiest winter in decades left millions of Chinese without heat and running water.

Friction between coal producers and utilities has just made matters worse.

China's domestic prices of coal and crude oil rose 14.2 percent and 35 percent year-on-year, respectively, in December, according to the country's central bank.

But electricity prices rose only 2.1 percent. Utilities have chafed at caps on rates that prevent them from passing the higher costs for coal on to customers. And coal suppliers are pushing for higher prices.

China exported 53 million tons of coal last year, down 16 percent from 2006. Coal imports rose 34 percent to 51 million tons, much of it going to the country's expanding steel industry.

Former Sinopec Chairman Faces Corruption Charges

The former chairman of China's No. 2 oil company, Sinopec Corp., was expelled from the Communist Party and charged with corruption and bribe taking.

Chen Tonghai "abused his position to obtain improper benefits for his mistress and others and led a corrupt life," state broadcaster CCTV reported on its main evening national news broadcast.

Chen resigned abruptly last June from his Sinopec post and as president of the company's state-owned parent, and immediately disappeared from public view.

Sinopec, also known as China Petroleum & Chemical Co., is Asia's biggest publicly listed oil refiner by capacity and China's second-biggest oil company after China National Petroleum Corp.

Petrohawk Offers Shares, Delays IPO

Independent oil and natural gas producer Petrohawk Energy Corp. plans a public offering of 15 million shares of common stock. The company expects to use proceeds to pay down part of its debt in a senior revolving credit agreement.

Petrohawk had 170.4 million shares outstanding as of Nov. 2.

Petrohawk also said it will delay a proposed initial public offering of units in a master limited partnership because of market conditions.

The company said in October that its HK Energy Partners LP unit planned to offer 9.3 million common units representing limited partner interests. The division was created by Petrohawk to acquire, develop and exploit oil and natural gas properties.

Petrohawk raised its 2008 production guidance and capital budget to $800 million from $700 million, because of recent acquisitions and positive drilling results.

More Rigs Operating in the U.S.

The number of rigs actively exploring for oil and natural gas in the U.S. rose by 15 this week to 1,747. That compares with a rig count of 1,699 a year ago.

Of the rigs running nationwide, 1,422 explored for natural gas and 318 for oil, according to Houston-based Baker Hughes Inc., which tracks operating rigs. Seven rigs were listed as "miscellaneous."

Colorado and Oklahoma each gained eight operating rigs, New Mexico three, and Louisiana one. California lost four, Texas lost three and Alaska dropped by one.

Total Will Pay Damages for Big Oil Spill

Total SA said it will appeal the guilty verdict against it in the 1999 sinking of the oil tanker Erika, which caused France's worst-ever oil spill.

But the French petroleum giant also said that whatever the outcome of the appeal, it will also pay court-ordered compensation for the spill.

The court ordered Total and three other defendants to pay $285 million in compensation to 101 civil parties; including the state, associations involved in the cleanup and ecology groups.

--Compiled by AP Business Writer Greg Stec. Questions or comments can be directed to

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