NEW YORK, May 13 (Reuters) - Recent concerns that growth in the United States Natural Gas Fund (UNG.P) (UNG) has been the primary driver behind the strong gas price run-up this month may be overblown, some industry analysts said.
Some analysts have estimated UNG could hold as much as 80 percent of New York Mercantile Exchange June natural gas open interest, stirring concerns that such a huge share could impact price volatility.
But some said the share was probably a lot lower.
"There's been a lot of attention paid to the growing open interest held by UNG, but it's completely disingenuous to say that it currently represents 80 percent of the futures market. That completely overstates the case," said Addison Armstrong, director of market research at Tradition Energy in Connecticut.
Armstrong noted that data from May 12 showed UNG held the June futures equivalent of about 42,000 contracts, or only about a quarter of the NYMEX June gas open interest, which includes both swaps and futures contracts.
UNG is an exchange-traded fund, or ETF, that tracks the price of natural gas futures on the New York Mercantile Exchange. It's one way for smaller players to invest in commodities like gas by buying shares in the fund without worrying about margin calls if their bet goes wrong.
The fund on Wednesday began the first of four days of rolling June positions into July, but had only minimal impact on the price spread, which widened by just 1.3 cents today.
Growth in the fund triggered talk this week about its impact on the sharp rally in gas this month despite bearish fundamentals that helped drive prices down some 75 percent in the last 10 months to 6-1/2-year lows of $3.155 per million British thermal units in late April.
But prices have since staged an impressive recovery, spiking some 30 percent this month to the $4.50 area though inventories remain near record highs and industrial demand is down sharply due to a severe recession.
"We have no doubt that the flood of money into the UNG established a floor in the NYMEX (natural gas) market - regardless of extant weak fundamentals - and is now propelling the market higher," said Stephen Schork, editor of the Schork Report, in a report this week.
UNG's share of open interest is significant and buying by that fund probably did contribute to some of the recent upside, but traders said other factors were also at work.
While total volume and open interest in natural gas futures are up sharply so far this month, chart traders point out that some of those gains would be expected in a market that blew through some key technical resistance points in the last two weeks.
They note that speculative hedge funds were caught holding a sizable net short natural gas futures position and probably fueled some of the rally as they scrambled to cover, or lock in profits, as prices moved against them.
In addition, traders said end-user buying probably also backed some of the upside as players who missed the recent lows tried to lock in prices in case the market heads even higher. (Reporting by Joe Silha; Editing by Christian Wiessner)
Thursday, May 14, 2009
Wednesday, May 13, 2009
Natural Gas Costs May Have Added CO2 Abatement Cost
NEW YORK, May 12 (Reuters) - Proposed U.S. climate change legislation could cause power prices in the ERCOT market in Texas to jump about $10 billion or $27 per month for the average consumer by 2013, the Electric Reliability Council of Texas (ERCOT) said Tuesday.
To reduce carbon emissions in the region to 2005 levels by 2013, ERCOT, the grid for most of Texas, forecast carbon allowance costs must rise to between $40 and $60 per ton.
Burning fossil fuels such as coal and natural gas to generate electricity produces about 30 percent of U.S. carbon dioxide emissions.
More than 80 percent of the generation in ERCOT burns fossil fuels, with 41 percent from natural gas, 27 percent from natural gas and oil, and 16 percent from coal.
Coal plants, which produce about twice the CO2 of a comparable natural gas plant, usually operate around the clock because coal plants are less expensive to run. All but the most efficient natural gas plants usually run only during peak hours.
To come up with its projections, ERCOT forecast natural gas prices of $7 per million British thermal units and consumer demand at currently forecast growth levels.
If natural gas prices rise over $7 per mmBtu, the cost of the allowances would climb, boosting power costs. With natural gas at $10 per mmBtu, for example, ERCOT forecast power costs could climb by about $20 billion by 2013.
Natural gas prices have swung widely over the past year, peaking last summer above $13 before skidding as low as $3.15 a couple of weeks ago. Natural gas prices are currently trading on the NYMEX in the $4.50 per mmBtu area.
But electric costs would not rise as much as forecast if higher rates cause consumers to cut back on power usage and/or generating companies build more wind farms than forecast, Continued...
To reduce carbon emissions in the region to 2005 levels by 2013, ERCOT, the grid for most of Texas, forecast carbon allowance costs must rise to between $40 and $60 per ton.
Burning fossil fuels such as coal and natural gas to generate electricity produces about 30 percent of U.S. carbon dioxide emissions.
More than 80 percent of the generation in ERCOT burns fossil fuels, with 41 percent from natural gas, 27 percent from natural gas and oil, and 16 percent from coal.
Coal plants, which produce about twice the CO2 of a comparable natural gas plant, usually operate around the clock because coal plants are less expensive to run. All but the most efficient natural gas plants usually run only during peak hours.
To come up with its projections, ERCOT forecast natural gas prices of $7 per million British thermal units and consumer demand at currently forecast growth levels.
If natural gas prices rise over $7 per mmBtu, the cost of the allowances would climb, boosting power costs. With natural gas at $10 per mmBtu, for example, ERCOT forecast power costs could climb by about $20 billion by 2013.
Natural gas prices have swung widely over the past year, peaking last summer above $13 before skidding as low as $3.15 a couple of weeks ago. Natural gas prices are currently trading on the NYMEX in the $4.50 per mmBtu area.
But electric costs would not rise as much as forecast if higher rates cause consumers to cut back on power usage and/or generating companies build more wind farms than forecast, Continued...
Tuesday, May 12, 2009
Alabama Natural Gas Under Repair
NEW YORK, May 11 (Reuters) - El Paso Corp (EP.N) unit Southern Natural Gas Co said Monday it removed from service for repair a portion of the 24-inch north main line, located in north central Alabama between its Providence and Tarrant compressor stations, on its natural gas pipeline system.
"Based on the best information available at this time the line is not anticipated to return to service until late this week," the company said in a website posting.
While the outage had not impacted operations and was not likely to impact firm transportation on the line, the company said there could be an impact to some interruptible service and peak hourly capacity at points downstream of the Providence station.
Interruptible customers typically pay lower fees to ship gas with the understanding that volumes can be curtailed during periods of peak demand or during unplanned outages.
The 7-600-mile Southern Natural Gas pipeline system is part of El Paso's 42,000-mile interstate pipeline system connecting the nation's most prolific gas supply regions with the largest consuming regions in the U.S., transporting more than a quarter of daily natural gas consumption in the country. (Reporting by Eileen Moustakis; Editing by John Picinich)
"Based on the best information available at this time the line is not anticipated to return to service until late this week," the company said in a website posting.
While the outage had not impacted operations and was not likely to impact firm transportation on the line, the company said there could be an impact to some interruptible service and peak hourly capacity at points downstream of the Providence station.
Interruptible customers typically pay lower fees to ship gas with the understanding that volumes can be curtailed during periods of peak demand or during unplanned outages.
The 7-600-mile Southern Natural Gas pipeline system is part of El Paso's 42,000-mile interstate pipeline system connecting the nation's most prolific gas supply regions with the largest consuming regions in the U.S., transporting more than a quarter of daily natural gas consumption in the country. (Reporting by Eileen Moustakis; Editing by John Picinich)
Monday, May 11, 2009
Natural Gas Up in Moscow Smoke
MOSCOW (AP) — A natural gas pipeline exploded in southwestern Moscow early Sunday, the Emergency Services Ministry said, sending flames soaring more than 100 meters (yards) into the sky.
Yevgeny Bobylyov, Emergency Services Ministry spokesman, said the pipeline exploded shortly after midnight and that a three-story building caught fire.
The flames lit up the low clouds and were visible from rooftops around the city.
Russian news agencies reported that at least three people were being treated for burns.
The Vesti-24 television channel carried live pictures of the fire and reported that parked cars were being removed within a radius of half a kilometer (550 yards) of the fire.
Residential buildings near the fire were also being evacuated, news agencies reported. The blast occurred near a gasoline station, they said.
(This version CORRECTS UPGRADES sourcing, ADDS details, corrects location to southwestern Moscow. For global distribution.)
Copyright © 2009 The Associated Press. All rights reserved.
Yevgeny Bobylyov, Emergency Services Ministry spokesman, said the pipeline exploded shortly after midnight and that a three-story building caught fire.
The flames lit up the low clouds and were visible from rooftops around the city.
Russian news agencies reported that at least three people were being treated for burns.
The Vesti-24 television channel carried live pictures of the fire and reported that parked cars were being removed within a radius of half a kilometer (550 yards) of the fire.
Residential buildings near the fire were also being evacuated, news agencies reported. The blast occurred near a gasoline station, they said.
(This version CORRECTS UPGRADES sourcing, ADDS details, corrects location to southwestern Moscow. For global distribution.)
Copyright © 2009 The Associated Press. All rights reserved.
Sunday, May 10, 2009
730 US Rigs Explorinjg for Natural Gas
HOUSTON (AP) — The number of rigs actively exploring for oil and natural gas in the United States fell by 17 this week to 928, down nearly half from a year ago.
Of the rigs running nationwide, 730 were exploring for natural gas and 190 for oil, Houston-based Baker Hughes Inc. reported Friday. Eight were listed as miscellaneous.
A year ago, the rig count stood at 1,846. The U.S. count is down 54 percent since the end of August as weak energy demand has hampered oilfield activity.
Oil prices peaked at almost $150 a barrel in July before plunging. Light, sweet crude rose 65 cents to $57.36 a barrel in trading Friday on the New York Mercantile Exchange.
Of the major oil- and gas-producing states, Texas lost 20 rigs, Oklahoma lost four, Colorado lost two and North Dakota lost one. California added four rigs, Louisiana added three, Alaska and Wyoming each added one while Arkansas and New Mexico were unchanged.
Baker Hughes has tracked rig counts since 1944. The tally peaked at 4,530 in 1981, during the height of the oil boom. The industry posted several record lows in 1999, bottoming out at 488.
Of the rigs running nationwide, 730 were exploring for natural gas and 190 for oil, Houston-based Baker Hughes Inc. reported Friday. Eight were listed as miscellaneous.
A year ago, the rig count stood at 1,846. The U.S. count is down 54 percent since the end of August as weak energy demand has hampered oilfield activity.
Oil prices peaked at almost $150 a barrel in July before plunging. Light, sweet crude rose 65 cents to $57.36 a barrel in trading Friday on the New York Mercantile Exchange.
Of the major oil- and gas-producing states, Texas lost 20 rigs, Oklahoma lost four, Colorado lost two and North Dakota lost one. California added four rigs, Louisiana added three, Alaska and Wyoming each added one while Arkansas and New Mexico were unchanged.
Baker Hughes has tracked rig counts since 1944. The tally peaked at 4,530 in 1981, during the height of the oil boom. The industry posted several record lows in 1999, bottoming out at 488.
Saturday, May 9, 2009
El Paso Natural Gas
HOUSTON (Reuters) - El Paso Corp (EP.N) posted better-than-expected results on realized gains on oil and natural gas hedges and pipeline growth, sending its shares soaring 11 percent.
Investors pushed the stock of the natural gas producer and pipeline company to the largest one-day gain in more than five months in morning trade on the New York Stock Exchange.
El Paso and other oil and gas companies have cut 2009 budgets and slowed drilling to help weather a more than 40 percent slide in natural gas prices. Even so, El Paso said its financial position is strong.
"We have maintained a strong liquidity position with more than sufficient liquidity to meet 2009 debt maturities, fund our 2009 capital program, and carry us well into 2010," Doug Foshee, El Paso's chief executive officer, said in a statement accompanying the results on Friday.
Larger price realizations for the company's exploration and production arm and stronger-than-expected results at its pipeline unit fueled the Wall Street beat, energy research firm Tudor Pickering Holt Securities & Co wrote in a note to clients.
El Paso, based in Houston, reported a net loss of $978 million or $1.41 per share, compared with a profit of $200 million, or 29 cents per share a year earlier.
But, excluding $1.3 billion, or $1.92 per share, in non-cash charges, El Paso posted adjusted earnings of 47 cents per share.
Analysts on average had expected 27 cents per share, according to Reuters Estimates. Continued...
Investors pushed the stock of the natural gas producer and pipeline company to the largest one-day gain in more than five months in morning trade on the New York Stock Exchange.
El Paso and other oil and gas companies have cut 2009 budgets and slowed drilling to help weather a more than 40 percent slide in natural gas prices. Even so, El Paso said its financial position is strong.
"We have maintained a strong liquidity position with more than sufficient liquidity to meet 2009 debt maturities, fund our 2009 capital program, and carry us well into 2010," Doug Foshee, El Paso's chief executive officer, said in a statement accompanying the results on Friday.
Larger price realizations for the company's exploration and production arm and stronger-than-expected results at its pipeline unit fueled the Wall Street beat, energy research firm Tudor Pickering Holt Securities & Co wrote in a note to clients.
El Paso, based in Houston, reported a net loss of $978 million or $1.41 per share, compared with a profit of $200 million, or 29 cents per share a year earlier.
But, excluding $1.3 billion, or $1.92 per share, in non-cash charges, El Paso posted adjusted earnings of 47 cents per share.
Analysts on average had expected 27 cents per share, according to Reuters Estimates. Continued...
Friday, May 8, 2009
Natural Gas Going Forward
Natural gas prices are about a third of what they were last summer, and oil and gas companies are cutting their capital spending to the bone. But it’s hard to turn off the spigots in the enormous shale fields that have been developed from Pennsylvania to Texas over the last few years.
The Dallas Morning News noted on Thursday that the three largest natural gas companies operating in the Barnett Shale of north Texas — thus far the motherload of shale fields — produced significantly more gas during the first quarter of this year compared to last.
This comes despite a plummeting number of rigs and dwindling industrial demand for gas due to the current economic slowdown. The abundance of the gas output reflects the fact that new shale wells are extremely productive in their first year or two, and it means that it could take several more months for the price of gas to rebound as production slows and balances with reduced demand.
“We really have a hard time slowing Barnett growth down,” said Keith Hutton, chief executive of XTO Energy of Fort Worth on a conference call.
The chairman of the company, Bob Simpson, said on the same call: “Who wants to grow gas and production in a $3 price environment? We don’t.”
Natural gas ended the first quarter of 2008 at $10 per million BTUs. It now hovers at just above $4, having risen in recent days along with oil and other commodities.
XTO produced 29 percent more natural gas in the quarter than last year. Devon Energy, the biggest producer in the Barnett, boosted production by 7 percent. Chesapeake Energy, an aggressive player in shale across the country, raised its production by 5 percent.
Nevertheless, profits have been shrinking across the industry.
Many experts say that by early next year production will be down, and prices could be $7 per million BTUs or higher.
The Dallas Morning News noted on Thursday that the three largest natural gas companies operating in the Barnett Shale of north Texas — thus far the motherload of shale fields — produced significantly more gas during the first quarter of this year compared to last.
This comes despite a plummeting number of rigs and dwindling industrial demand for gas due to the current economic slowdown. The abundance of the gas output reflects the fact that new shale wells are extremely productive in their first year or two, and it means that it could take several more months for the price of gas to rebound as production slows and balances with reduced demand.
“We really have a hard time slowing Barnett growth down,” said Keith Hutton, chief executive of XTO Energy of Fort Worth on a conference call.
The chairman of the company, Bob Simpson, said on the same call: “Who wants to grow gas and production in a $3 price environment? We don’t.”
Natural gas ended the first quarter of 2008 at $10 per million BTUs. It now hovers at just above $4, having risen in recent days along with oil and other commodities.
XTO produced 29 percent more natural gas in the quarter than last year. Devon Energy, the biggest producer in the Barnett, boosted production by 7 percent. Chesapeake Energy, an aggressive player in shale across the country, raised its production by 5 percent.
Nevertheless, profits have been shrinking across the industry.
Many experts say that by early next year production will be down, and prices could be $7 per million BTUs or higher.
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