Natural Gas/Crude Oil

NEW YORK (Dow Jones)--Natural gas futures wavered Tuesday as
traders weighed forecasts of wintry weather in the eastern U.S. against
government data showing only modest growth in industrial production.
Natural gas for December delivery on the New York Mercantile
Exchange was trading 1.7 cents higher, or 0.37%, at $4.631 a million
British thermal units after opening floor trade 9.8 cents higher at
$4.712/MMBt.
Below-normal temperatures in parts of the U.S. Midwest and
Northeast in late November and early December were expected to boost
the demand for natural gas for heating. Temperatures have been mostly
mild in the major gas-consuming regions since the start of the winter
heating season on Nov. 1, and a sustained period of cold weather would
be needed to put a significant dent in brimming gas inventories.
Total gas in U.S. storage as of Nov. 6 was 3.813 trillion cubic
feet, 12% above the five-year average and 10.1% above last year's
level.
The forecasts of brisk temperatures have prompted gas traders, who
have been betting heavily on falling prices over the past several
months, to buy back previously sold contracts.
"We definitely have some fundamental weakness overhanging the
market, but the weather forecasts for the beginning of December are
beginning to turn toward a more normal winter, and that's putting some
pressure on the short positions," said Gene McGillian, an analyst with
Tradition Energy in Stamford, Conn.
Joe Bastardi, a meteorologist with AccuWeather.com, was predicting
below-normal temperature across most of the Northeast, Southeast and
Great Lakes in the last week of November and first week of December.
"I am leaning toward a major cold period between Dec. 1-10," Bastardi wrote in a note to clients Tuesday.
A Federal Reserve report showing a smaller-than-expected uptick in
U.S. industrial production in October placed some downward pressure on
gas prices Tuesday, however. The Fed reported that industrial output
rose 0.1% last month, below the 0.3% Wall Street had expected.
Gas traders have closely watched economic data for signs of a rebound that would spark greater energy demand.
The industrial production report "should set the tone for the day,
and on that note, bearish," wrote Drew Wozniak, an analyst with ICAP
Energy, in a note to clients Tuesday.
-By Christine Buurma, Dow Jones Newswires; 212-416-2143; christine.buurma@dowjones.com

UNL is different from the UNG in that it does not roll over all contracts to the next month at expiration. Instead the expired contract is replaced with a contract 12 months from the expiration. I will definately have to investigate this. Just started trading today

United States Commodity Funds recently won
regulatory approval for its newest addition: a 12-month natural gas
fund. The fund is expected to begin trading today. The U.S. 12 Month Natural Gas Fund (NYSEArca: UNL) has
gotten the green light from regulators to issue about 30 million
shares, which will purchase natural gas futures for delivery over the
next 12 months. Asjylyn Loder for Bloomberg reports that it will sell the near-month contract as it approaches expiration and replace it with a contract for delivery in 12 months. The ETF comes from U.S. Commodity Funds LLC, which also manages the popular $3.5-billion U.S. Natural Gas Fund (NYSEArca: UNG) and the $1.96-billion U.S. Oil Fund (NYSEArca: USO). UNG
differs from UNL in that UNG buys the near-month contract, then sells
it each month as it nears expiration and buys the next month. In
terms of natural gas prices and futures, what’s the difference between
UNG and UNL? UNL can help mitigate some of the impact of contango,
which is when the front-month contract is higher priced than the
contracts further out. By using the 12-month approach, the impact of
contango is, on average, about two-thirds less than it would be in a
fund that simply uses a front-month approach. Which fund an
investor chooses depends on what’s trying to be accomplished. When the
markets are in contango, it’s no guarantee that a 12-month fund would
do better. On the other hand, it could be beneficial for investors
looking to lessen the impact contango can have. On the other hand, if
someone is trading frequently and heavily, there might not be as much
concern about contango. As the energy markets shift, it could be more
advantageous to be in one fund over another – but it’s no guarantee in
the volatile energy space. Many have learned that a single hurricane
can change conditions rapidly. Natural gas futures were wavering
today. Below-normal temperatures in the Midwest and Northeast are
anticipated to boost natural gas demand, but there’s only been modest
growth in industrial production, reports Christine Buurma for Dow Jones Newswires. Until today, many traders had been betting that natural gas prices would fall in the coming months.

Oil Numbers from EIA

Highlights
Oil stocks fell 0.9 million barrels in the Nov. 13 week while gasoline
stocks also fell, down 1.7 million barrels, as did distillates, down
0.3 million. Despite operating at a very soft 79.4 percent of capacity,
refineries did increase gasoline output in the week, now at 9.1 million
barrels a day. Throw in another 0.6 million barrels a day of gasoline
that are imported, and the total well exceeds domestic demand which the
EIA pegs at 8.9 million barrels a day. Despite today's draws, bulging
supply remains a key negative for the energy markets. Oil gyrated in
reaction to the data, settling to pre-data levels at just below $80.

Nat Gas numbers from EIA

Natural gas in storage rose 20 billion cubic feet in the Nov. 13 week.

Ukraine Seeks Russia Gas Fine Waiver, Warns on Supply (Update3)

By Kateryna Choursina

Nov. 19 (Bloomberg) -- Ukraine is seeking an amendment to
its accord with Russia to waive fines for buying less gas than
contracted this year, Ukrainian President Viktor Yushchenko said
in a letter to Russian counterpart Dmitry Medvedev.
State-run NAK Naftogaz Ukrainy may be unable to prepare for
the heating season starting at the end of next year, potentially
threatening “the reliability of gas shipments to Ukraine and
transit to other European states,” Yushchenko said in the
letter posted on his Web site.
The president wants to reduce volumes of natural gas that
Ukraine imports under the contract to a maximum of 30 billion
cubic meters a year, the letter reads.
Russia is open to talks with Ukrainian partners, President
Dmitry Medvedev’s aide Sergei Prikhodko told reporters in Moscow
today. “There is no sense in getting in depth analysis of” gas
supply and transit, he said in the statement. “Commercial terms
are not discussed at the level of heads of states.”
Ukraine signed a 10-year gas supply and transit contract
with Russia in January after Moscow-based OAO Gazprom, which
supplies a quarter of Europe’s gas, cut shipments to Ukraine for
almost two weeks in a price dispute. The spat caused disruption
in 20 European nations amid freezing temperatures.
The contracts signed by the prime ministers of Russia and
Ukraine in January envisage imports of 40 billion cubic meters
by Ukraine this year, according to Bohdan Sokolovskyi,
Yushchenko’s energy aide. The possibility of buying 20 percent
less has not been documented, he said last week. Ukraine has no
written assurances to avoid possible penalties of $7 billion for
importing less than contracted, he said.
Ukraine Imports
The country will consume 27 billion cubic meters of the
fuel in 2009, Prime Minister Yulia Timoshenko said in September.
That compares with an earlier projection of between 27 billion
and 33 billion cubic meters. Ukraine imported about 18 billion
cubic meters of natural gas through the end of October.
Ukraine extracts about 20 billion cubic meters of its own
gas a year, of which about 18 billion is used by households,
Ukraine’s Communal Service and Housing Minister, Oleksiy
Kucherenko said last week.
The country will seek to contract 32 billion cubic meters
of Russian gas in 2010, the same as agreed this year, Timoshenko
said two months ago, and will not be fined for taking less than
32 billion in 2009.
‘Pump or Pay’
Yushchenko also wants the contracts to include the minimum
amount of transit volumes about 100 billion cubic meters a year
on the “pump or pay” principle and “symmetrical
responsibility of both parties for risks and symmetrical
economically justified fines.”
Ukraine’s premier Timoshenko said yesterday that the gas
contract wasn’t on the agenda of her meeting with Russian
counterpart Vladimir Putin at the Commonwealth of Independent
States heads of state meeting in Yalta today.
Russian Prime Minister Vladimir Putin plans to hold gas
talks with Timoshenko today before an intergovernmental meeting,
said Yury Ushakov, his deputy chief of staff.
“The situation in gas sector will be discussed in
detail,” Ushakov told reporters in Moscow late yesterday.

Commodities Roundup 11/19


Oil dropped by 2%, today making its way to the
lower end of the recent range. We’ve suggested waiting for lower levels
before establishing longs and we are sticking to our guns; ideally a
trade down $76 and potentially $74 on the January contract. Expect some
fireworks tomorrow as December goes off the board. Natural gas
made a new low but prices appear to be closing near the highs 2% higher
on the day. We want to stay long but a bearish AGA tomorrow may kill
our hopes. Longer term this most likely will be a value play, but as
for the January mini-futures and call spreads, clients need to see a
move back above $5 to think these trades have a chance of being
profitable.Sugar gave up ground today and in
the next couple sessions should break out of the ascending wedge that
has been forming in recent months. As you know we have a bullish
bias... time will tell.We hit the ground running in the ES puts
purchased yesterday with equities getting clipped today, though we are
far from out of the woods. Our target remains 1060 on the March
contract which the January options trade off.Gold
hit the up sloping trend line at its lows this morning at $1130 in
December. We expect a correction but have been voicing this in recent
weeks and been either early or wrong. IF $1130 was to give
way, I believe we will be proven correct. The stock market and US
dollar will determine gold’s destiny in the short run. June and
September 10′ Euro-dollar futures have moved higher 11 out of the last
12 days… yes, we’re still recommending scaling into shorts. We want
clients to have a small position and then will look to add to it once
it becomes profitable. This is a trade that we would rather be early
than late being once it gets started we expect the first leg down to be
dramatic. The currency market was quiet but as a side note pay close
attention to the 20 day moving averages on all FX crosses as it has
served as a pivot point.Grains for the most
part were quiet though soybeans and soy meal were higher; most likely
attributed to the significant pop in weekly exports. We are expecting
to re-establish longs for clients at lower levels as indicated
yesterday. Live cattle are stabilizing; the recent
slide had our clients on their heels as they have various bullish
strategies in place. We continue to suggest long exposure in the
February contract.

The SEC does a fantastic job with regulation... It's as hame you missed Guy Adami and Joe Mazella Snapman. They both said that the only people willing to work for the SEC are stupid or want to work on wall street. Hence poor and unclear regulation.



What are the consequences of allowing multi-billion-dollar systemically important multinational corporations to report their assets using proprietary mark-to-model tools involving discredited Monte Carlo simulations? I think we all know the answer to that one. But unbelievably, after such shenanigans contributed enormously to the greatest financial meltdown in living memory, the SEC is now set to allow more or less exactly the same thing in the oil industry.

Otto points to a stunning report by oil consultant Alan von Altendorf which spells it all out. Up until now, oil companies needed to actually prove they had reserves before they reported proven oil reserves. Now, however, the SEC is allowing them to use internal, proprietary computer models to essentially pull their “proven reserve” numbers out of thin air (or the nearest friendly Monte Carlo simulation).

Von Altendorf goes into great detail about how such numbers are useless and meaningless, and how the “proven reserve” rules should probably be tightened, rather than loosened, given the number of enormous write-downs in proven reserves which have taken place across the oil industry in recent years.

So what’s the SEC thinking here? Frankly, it’s not thinking at all: This is just another case of regulatory capture. And a sign that, so far at least, nothing has changed at the unsalvageable and dysfunctional institution.

Quote :

Batman said:

The SEC does a fantastic job with regulation... It's as hame you missed
Guy Adami and Joe Mazella Snapman. They both said that the only people
willing to work for the SEC are stupid or want to work on wall street.
Hence poor and unclear regulation.

LOL excellent quote. Btw, this is ridiculous considering the size of the oil industry and how much power they have. Their traders on the trading floors are treated like godlike creatures. With big ego traders and poor accounting standards this spells for disaster. But then again this maybe a poor assessment for some of the big players as a lot of them are on top of their games via strategy/planning and very clean management styles.

Also, this will be interseting to see how this plays out with future developing in energy markets.

Solar Power and California


California’s ambitious goal of obtaining a third of its electricity
from renewable sources by 2020 has spawned a green energy boom with
thousands of megawatts of solar, wind, and biomass power plants planned
for ... the middle of nowhere. And therein lies
the elephant in the green room: transmission. Connecting solar farms
and geothermal plants in the Mojave Desert and wind farms in the
Tehachapis to coastal metropolises means building a massive new
transmission system. The cost for 13 major new power lines would top
$15.7 billion, according to a report released in August by the state’s Renewable Energy Transmission Initiative.
The
initiative, called RETI, is an attempt to build a statewide green grid
in an environmentally sensitive way that will avoid the years-long
legal battles that have short-circuited past transmission projects.
But
the rapidly evolving solar photovoltaic market may moot the need for
some of those expensive and contentious transmission lines, requiring
transmission planners to rethink their long-term plans, according to
Black & Veatch, the giant consulting and engineering firm that does
economic analysis for RETI. In short,
solar panel prices have plummeted so much as to make viable the
prospect of generating gigawatts of electricity from rooftops and
photovoltaic farms built near cities.
“This
has pretty significant implications in terms of transmission planning,”
Ryan Pletka, Black & Veatch’s renewable energy project manager,
told me last week. “What we thought would happen in a five-year time
frame has happened in one year.”
That’s
prompted Pletka to radically revise the potential for so-called
distributed generation—solar systems that can plug into the existing
grid without the construction of new transmission lines—to contribute
to California’s need for 60,000 gigawatt hours of renewable electricity
by 2020.
When
Black & Veatch did its initial analysis last year, it predicted
that photovoltaic solar could contribute 2,000 gigawatt hours, given
the high cost of conventional solar modules and the fact that a
next-generation technology, thin-film solar, had yet to make a big
commercial breakthrough.
Pletka’s
new number is a bit of a shocker: Distributed generation could
potentially provide up to 40,000 gigawatt hours of electricity, or
two-thirds of projected demand.
“Certainly some of the new transmission lines will be needed but not as many as before,” he says.
That
analysis also calls into question the need for as many large-scale
solar power plants. Currently there are about 35 Big Solar projects
planned for California that would generate more than 12,000 megawatts
of electricity.
A game-changer has
been the rapid rise of thin-film solar. Thin-film solar modules are
essentially printed on glass or other materials. Although such solar
panels are less efficient at converting sunlight into electricity than
traditional crystalline modules—which are made from silicon wafers—they
can be produced more cheaply.
In the past year, utilities like Southern California Edison have signed deals with First Solar, the thin-film powerhouse, to buy electricity from four massive megawatt thin-film solar farms. And in September, China inked an agreement with the Tempe, Ariz., company to build a 2,000-megawatt power plant, the world’s largest. The next day, Nanosolar, a Silicon Valley startup, announced it had secured $4.1 billion in orders for its thin-film modules, which it claims will be even more efficient and cost less to produce than those made by First Solar (FSLR).
Meanwhile,
California’s two biggest utilities, PG&E and Southern California
Edison, this year each unveiled initiatives to collectively install
1,000 megawatts of distributed solar generation. SoCal Edison will put
solar arrays on warehouse roofs throughout the Southland - First Solar
snagged the first big contracts - while PG&E is focusing on
ground-mounted solar systems near its existing substations.
So what’s behind this rooftop revolution in solar?
Partly
it’s due to a glut in the solar panel market. The global economy
collapsed last year just as solar module makers ramped up production.
But it’s also a result of technological innovation and economies of
scale that have made thin-film solar, for instance, competitive.
Strides have also been made in cutting installation costs, which
typically account for half the price of photovoltaic systems. And
finally, a giant key in gaining traction towards critical mass in
rooftop solar systems is financing. California-based SolarCity
has emerged as an industry leader in providing financing that makes
fiscal sense for homeowners and commercial building owners through
their SolarLease program.
The
solar market, of course, is heavily dependent on government
incentives—in the United States and overseas—and thus vulnerable to
disruption. But the trajectory remains one of falling prices and thus
Black & Veatch’s projections pose a conundrum for transmission
planners.
Given
that transmission projects can take a decade to complete, power
bureaucrats make their plans based on 10-year projections of energy
costs according to Pletka. That wasn’t much of a problem when planning
transmission for, say, a grid supplied by natural gas-fired power
plants as the technology or the market was not likely to change
radically.
Not
so for solar, where technological advances and fast-changing market
conditions are shaking long-held views that photovoltaic power, or PV,
is not ready for prime time.
“I’ve
worked in renewables since the ‘90s and I myself had written off solar
PV for years and years and years,” Pletka says. “That’s a firmly rooted
mindset among everyone who works from a traditional utility planning
perspective.”
“We
present this new information on photovoltaics to people and it’s still
not sinking in,” he adds. “It would cause a major shift in how we plan.”
While
fewer massive transmission projects would be needed if California
generates gigawatts of electricity from rooftops, the distribution
network will need to be upgraded and a smart grid created to manage
tens of thousands of pint-sized solar power plants.
Cities, Pletka notes, could become generators of electricity rather than consumers of power. “It brings up questions people haven’t had to talk about before,” says Pletka.

This is a long read not really meant for a blog but it is a great find nonetheless. The article discusses The availability of oil reserves in the futures on a country by country basis, restrictions to those reserves, and the importance of an ample and abundant cash flow for international oil companies (e.g. XOM, CVX, ConocoPhillips...). If one does not have the time to indulge in the articles entirety, I recommend viewing the charts via the link: http://news.morningstar.com/articlenet/article.aspx?id=316549&pgid=stockarticle#page=0&part=2, and also reading the paragraph on oil-sands in Canada. Thanks to Scalpuman for the encouragement to use Morningstar...


Super Major's resources may be drying up

COP) recent decision to reduce its asset base and capital spending in the coming years brings to the forefront the challenges facing the supermajor oil and gas companies. Despite dominating hydrocarbon development throughout the world during the last century, these six firms are now facing unprecedented difficulty in their pursuit of reserves. Jim Mulva, CEO of ConocoPhillips, cited the inability to gain access to resources as a primary reason for the company's strategic shift.
About the Author
Allen Good is a stock analyst covering the oil and gas industries. Prior to joining Morningstar in 2008, he performed M&A advisory work for a middle market investment bank. He holds an MBA from the University of North Carolina Kenan-Flagler Business School and a bachelor's degree in business from the University of Tennessee.
Contact Author | Meet other investing specialists

However, the other supermajors are unlikely to follow in ConocoPhillips' footsteps, in our opinion. We expect the remaining supermajors to continue investing at their historical levels. Production growth, however, will remain a challenge, given the limited opportunities for investment. Company forecasts for growth are anemic. ExxonMobil (XOM


Sponsored by:
XOM) expects production growth of 2%-3% during the next five years. BP (BP


Sponsored by:
BP) forecasts production growth of 1%-2% until 2013. Total (TOT


Sponsored by:
TOT) is targeting 2% through 2014. Royal Dutch Shell (RDS.A
Quote | Charts | Analyst Research
Last: $59.76 Day Change: -1.61%


Sponsored by:
RDS.A) plans to increase annual production by 2%-3% through 2012. Chevron (CVX


Sponsored by:
CVX) may reach 6% growth this year but is unlikely to achieve its earlier goal of a 3% compound annual growth rate from 2005 to 2010. OPEC curtailments, production-sharing arrangements, project delays, and disruptions from political upheaval can all prohibit the companies from reaching their goals. Even with these relatively low growth rates, supermajors will have to fully exploit their strengths to achieve their goals in an increasingly resource-restricted world.

Resource Nationalism
Given the location of the world's remaining reserves, it is easy to see how accessibility has become an issue. Foreign governments and their national oil companies (NOC) control an estimated 95% of the world's remaining reserves of oil and gas. These countries also control the majority of reservoirs large enough to warrant investment from a supermajor. Although the large amounts of resources held by governments and NOCs limit the resources available to international oil companies (IOC), they also present an opportunity. Many oil-rich countries can be viewed as a microcosm of global oil production. After 50 years, production rates in large fields are declining because of natural depletion while newly discovered reservoirs are in difficult-to-extract locations. Some NOCs, either through mismanagement or inexperience, are struggling to keep production flowing at historical levels.

The Value in Experience and Expertise
Given the reservoir size or the difficult location, development requires extensive engineering resources and expertise. The projects, often referred to as megaprojects, also tend to be large in scope and take years to complete. It can take upward of a decade from discovery to first production for projects that are far from existing infrastructure. Supermajors and only a handful of NOCs are able to bring the necessary resources and experience to bear on these projects. Large independent oil companies, such as Anadarko (APC


Sponsored by:
APC), Occidental (OXY


Sponsored by:
OXY), Apache (APA


Sponsored by:
APA), and Talisman (TLM


Sponsored by:
TLM), are often as equally skilled at exploration and production but often lack the financial means to sustain development through downturns in the commodity cycle. Balance sheet size and strength affords supermajors the ability to continue investing during the many years the projects take to develop.

In addition, supermajors offer an array of services that IOCs and service companies cannot. IOCs specialize in developing difficult reservoirs or boosting production at mature fields through enhanced oil-recovery techniques. Service companies can also provide similar expertise. However, by participating in the oil supply chain on a global scale, supermajors operate in segments that smaller IOCs and service firms do not. With an integrated model, supermajors can offer governments in search of a partner additional expertise in refining, transportation, and petrochemicals. For countries interested in developing their own oil and gas industry, this expertise has value. This capability can create opportunities in areas such as West Africa, where nations like Ghana have large resource bases but lack experience in development.



Stock Strategist Industry Reports
Supermajors' Resources Might Be Drying Up
Large oil and gas companies are facing challenges to production growth.
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By Allen Good | 11-30-09 | 06:00 AM | E-mail Article

ConocoPhillips' (COP
Quote | Charts | Analyst Research
Last: $51.77 Day Change: -0.29%


Sponsored by:
COP) recent decision to reduce its asset base and capital spending in the coming years brings to the forefront the challenges facing the supermajor oil and gas companies. Despite dominating hydrocarbon development throughout the world during the last century, these six firms are now facing unprecedented difficulty in their pursuit of reserves. Jim Mulva, CEO of ConocoPhillips, cited the inability to gain access to resources as a primary reason for the company's strategic shift.

However, the other supermajors are unlikely to follow in ConocoPhillips' footsteps, in our opinion. We expect the remaining supermajors to continue investing at their historical levels. Production growth, however, will remain a challenge, given the limited opportunities for investment. Company forecasts for growth are anemic. ExxonMobil (XOM


Sponsored by:
XOM) expects production growth of 2%-3% during the next five years. BP (BP


Sponsored by:
BP) forecasts production growth of 1%-2% until 2013. Total (TOT


Sponsored by:
TOT) is targeting 2% through 2014. Royal Dutch Shell (RDS.A
Quote | Charts | Analyst Research
Last: $59.76 Day Change: -1.61%


Sponsored by:
RDS.A) plans to increase annual production by 2%-3% through 2012. Chevron (CVX


Sponsored by:
CVX) may reach 6% growth this year but is unlikely to achieve its earlier goal of a 3% compound annual growth rate from 2005 to 2010. OPEC curtailments, production-sharing arrangements, project delays, and disruptions from political upheaval can all prohibit the companies from reaching their goals. Even with these relatively low growth rates, supermajors will have to fully exploit their strengths to achieve their goals in an increasingly resource-restricted world.

Resource Nationalism
Given the location of the world's remaining reserves, it is easy to see how accessibility has become an issue. Foreign governments and their national oil companies (NOC) control an estimated 95% of the world's remaining reserves of oil and gas. These countries also control the majority of reservoirs large enough to warrant investment from a supermajor. Although the large amounts of resources held by governments and NOCs limit the resources available to international oil companies (IOC), they also present an opportunity. Many oil-rich countries can be viewed as a microcosm of global oil production. After 50 years, production rates in large fields are declining because of natural depletion while newly discovered reservoirs are in difficult-to-extract locations. Some NOCs, either through mismanagement or inexperience, are struggling to keep production flowing at historical levels.

The Value in Experience and Expertise
Given the reservoir size or the difficult location, development requires extensive engineering resources and expertise. The projects, often referred to as megaprojects, also tend to be large in scope and take years to complete. It can take upward of a decade from discovery to first production for projects that are far from existing infrastructure. Supermajors and only a handful of NOCs are able to bring the necessary resources and experience to bear on these projects. Large independent oil companies, such as Anadarko (APC


Sponsored by:
APC), Occidental (OXY


Sponsored by:
OXY), Apache (APA


Sponsored by:
APA), and Talisman (TLM


Sponsored by:
TLM), are often as equally skilled at exploration and production but often lack the financial means to sustain development through downturns in the commodity cycle. Balance sheet size and strength affords supermajors the ability to continue investing during the many years the projects take to develop.

In addition, supermajors offer an array of services that IOCs and service companies cannot. IOCs specialize in developing difficult reservoirs or boosting production at mature fields through enhanced oil-recovery techniques. Service companies can also provide similar expertise. However, by participating in the oil supply chain on a global scale, supermajors operate in segments that smaller IOCs and service firms do not. With an integrated model, supermajors can offer governments in search of a partner additional expertise in refining, transportation, and petrochemicals. For countries interested in developing their own oil and gas industry, this expertise has value. This capability can create opportunities in areas such as West Africa, where nations like Ghana have large resource bases but lack experience in development.

Although many NOCs have made strides in recent years, they still are unable to match the capabilities of oil majors. Many governments rely on oil and gas production for funding of social programs necessary to maintain political stability. During the last year, the collapse in oil prices provided a wake-up call to government leaders when they saw the threat presented by low prices and falling production volumes. The need to continue to develop projects and maintain production from older fields could open the doors to traditionally closed regions. Supermajors can offer a compelling value proposition to governments rich in reserves but poor in production. Iraq is a good example where recently ExxonMobil, BP, and Eni (E


Sponsored by:
E) have succeeded in striking deals to boost volumes from currently producing fields.
About the Author
Allen Good is a stock analyst covering the oil and gas industries. Prior to joining Morningstar in 2008, he performed M&A advisory work for a middle market investment bank. He holds an MBA from the University of North Carolina Kenan-Flagler Business School and a bachelor's degree in business from the University of Tennessee.
Contact Author | Meet other investing specialists

Accessible but Expensive
Accessibility is not the lone issue facing supermajors' quest to increase reserves and production. The remaining available resources in countries considered accessible often have challenging economics. After Saudi Arabia, Canada holds the largest amount of oil reserves in the world. However, the majority of Canada's reserves are in the form of expensive-to-extract oil sands. In addition to the stigma attached to these reserves because of their environmental issues, oil sands projects typically require higher oil prices than conventional production to be economical. Led by ExxonMobil and Royal Dutch Shell, the oil majors have increasingly relied on oil sands in recent years to book reserves. Even though firms booking reserves with oil sands may continue to post attractive reserve-replacement ratios, ultimately returns may suffer as a result of enormous upfront capital costs, higher operating costs, and lower-quality crude.

Other accessible resource deposits fall much higher on the cost curve than historical production. In the United States, remaining resources adequate to interest supermajors are either located in deep-water locations or oil shales or they require enhanced oil recovery (EOR) techniques. Recently discovered fields in offshore Brazil are in incredibly deep water, far from shore, and will require technological and engineering breakthroughs to produce. As supermajors continue to replace production with higher-cost reserves, demand for oil will need to keep prices high enough to make these projects viable. Successful firms will be those that can deliver production efficiently, effectively, and within budget.

Not Content to Sit at Home
Competition for the world's remaining available and accessible resources remains fierce despite the associated costs and risks. To make matters worse for supermajors, in recent years NOCs have begun to expand outside of their native regions. Companies such as Statoil (STO


Sponsored by:
STO) and Petrobras (PBR


Sponsored by:
PBR) have acquired acreage in regions outside their respective home areas of Norway and Brazil. However, it is the recent acquisition activity of the Chinese state-owned companies PetroChina (PTR


Sponsored by:
PTR), CNOOC (CEO


Sponsored by:
CEO), and Sinopec (SNP


Sponsored by:
SNP) that could pose the most immediate threat. Although not on par with Western oil companies in regard to technology and expertise, they are gaining ground. Instead, their competitive advantage relies on cheap government financing and a mandate from their largest shareholder (the Chinese government) to prioritize acquisition of overseas reserves over returns. Chinese firms also benefit from the government spreading goodwill throughout the world, particularly in Africa, through cheap loans to developing nations. To date, however, Chinese firms have run into difficulties closing deals, particularly in West Africa, despite initial agreements. Although unable to close on every attempted transaction, their presence has likely driven up costs for supermajors. African countries are likely to try leveraging offers from Chinese firms to extract better terms from Western firms. In turn, Western firms will have to rely on their value proposition.

A Way Forward
To combat the issues of accessibility and deteriorating reserve quality, supermajors must focus their efforts on the core competencies. The ability to develop megaprojects sets supermajors apart from other oil and gas companies. These projects require billions of dollars of upfront investment and years of planning but provide years of plateau production levels with little reinvestment. With low debt levels and steady cash flow despite commodity price cycles, supermajors have the necessary financial fortitude to invest throughout the cycle to keep these projects on track. Few other IOCs can replicate that ability. This allows supermajors to be the driving force in the development of capital-intensive liquefied natural gas, oil sands, harsh environment, or deep-water projects.

Oil tumbles again, below $70 a barrel

Oil falls below $70 for first time since December on doubts about the global economy

By Chris Kahn, AP Energy Writer
On Friday February 5, 2010, 11:49 am EST


NEW YORK (AP) -- Oil prices fell Friday for the third straight day, weighed
down by a stronger dollar and persistent doubts about the health of the
global economy. Benchmark
crude for March delivery lost $3.38, nearly 5 percent, to $69.76 a
barrel on the New York Mercantile Exchange. It fell as low as $69.50 a
barrel, the lowest since Dec. 15. Energy prices started the year
on a high note, surging as economists predicted that China, India and
other developing nations would aggressively boost petroleum imports to
feed their growing economies.But China has since taken steps to
control risky bank lending and cool off its economy. And Greece,
Portugal and Spain have pushed the euro lower as they struggle to
handle massive budget deficits.

The U.S. Dollar Index, which
measures the greenback versus other major currencies, jumped Friday to
its highest level since July. Oil, which is priced in U.S. currency,
tends to fall when the dollar strengthens and makes barrels more
expensive for holders of foreign money. Even a surprise drop in
the unemployment rate -- from 10 percent to 9.7 percent -- wasn't
enough to encourage investors.


Manufacturers and retailers may have
added jobs, but the government report showed the economy has a long way
to go. Meanwhile, Americans are burning much less fuel than
previous years. The Energy Information Administration said this week
that U.S. petroleum consumption has dropped for four straight weeks. "There's
a lot of oil sloshing around out there," said Jim Ritterbusch,
president of energy consultancy Ritterbusch and Associates. "If I were
to give a fair price for oil it would be closer to $60" a barrel.


Retail
gasoline prices increased this week for the first time since the middle
of January. The national average added a half penny at $2.664 a gallon,
according to AAA, Wright Express and Oil Price Information Service.A
gallon of regular unleaded is 2.1 cents cheaper than a month ago, but
it's 75.7 cents more expensive than the same time last year. In
other Nymex trading in March contracts, heating oil dropped 7.8 cents
at $1.8576 a gallon, and gasoline fell 7.6 cents to $1.8748 a gallon.
Natural gas added 11.1 cents to $5.527 per 1,000 cubic feet. In London, Brent crude gave up $2.28 to $69.85 on the ICE futures exchange.

Wintry weather drives energy prices higher

Heating oil and other energy prices rise with more snow headed for Mid-Atlantic

By Chris Kahn, AP Energy Writer
On Monday February 8, 2010, 3:20 pm

NEW YORK (AP) -- Energy prices climbed Monday as another winter storm was expected to dump even more snow on the East Coast. Already, parts of Virginia, Maryland, Pennsylvania and Washington are blanketed
in about three feet of snow, knocking out power for tens of thousands
of people and forcing government offices to close.As those
regions dig out and warm up, analysts said they expected to see sizable
draws on the country's supply of natural gas and heating oil.

Mid-Atlantic states are some of the biggest natural gas and heating oil
consumers in the country.Oil, heating oil and gasoline prices
increased in response to the weather. But the contract for natural gas,
which remains in huge surpluses in the U.S., slid nearly 2 percent.
Energy experts said natural gas levels may drop in coming weeks, but
there's still much more than normal for this time of year.

"When you look at the supply numbers, it's hard to get excited about natural
gas," PFGBest analyst Phil Flynn said. "Unless it stays cold between
now and June we're not going to have any supply problems."The
National Weather Service said Monday that another storm could drop at
least a foot of fresh powder on the beleaguered Mid-Atlantic.
Forecasters said the storm will be strongest in central northern
Maryland, northern Delaware, and parts of New Jersey and Pennsylvania.

Forecaster Bruce Sullivan said the agency doesn't "really see any warm weather in sight."The
Weather Service also issued storm warnings throughout much of the
Midwest. Temperatures on Tuesday are expected to get no higher than the
20s across large sections of the U.S. from Montana to Maine, according
to agency forecasts.Heating oil for March delivery added 1.07 cents to settle at $1.8855 a gallon on the New York Mercantile Exchange.

If heating oil prices keep rising, utilities will eventually try to pass
those costs along to consumers in higher rates. But it usually takes an
extended surge in futures prices to affect home heating bills.Benchmark
crude for March delivery gained 70 cents to settle at $71.89 a barrel
on the Nymex, rebounding from an 8 percent drop last week. In London,
Brent crude gained 52 cents to settle at $70.11 on the ICE futures
exchange.At the pump, gasoline prices fell a half penny
overnight to a new national average of $2.652 a gallon, according to
AAA, Wright Express and Oil Price Information Service.

A gallon ofregular unleaded is 8.5 cents cheaper than last month, but it's still
73.1 cents more expensive than the same time last year.In other
Nymex trading in March contracts, gasoline rose less than a penny to
settle at $1.894 a gallon. Natural gas gave up 11.4 cents to settle at
$5.401 per 1,000 cubic feet.

Fundamentals do not paint the true picture for commodities anymore. Forex is the biggest story driving oil. Natural Gas is bought and sold by the street breaking down fundamentals.
======================================

Crude futures rise on economic data, U.S. supply update

Price for natural gas falls, bucking gains in petroleum products

NEW YORK (MarketWatch) -- Crude-oil futures gained more than 1%
Thursday to top $78 a barrel, with news of a drop in U.S. distillate
inventories helping offset rising crude supplies as well as a mixed
batch of economic reports.

Crude for March delivery was recently up $1.11, or 1.5%, at $78.47 a
barrel in electronic trading on Globex. The contract recovered after
having earlier fallen to an intraday low of $76.32.

"We've had mixed reports on both the economic and supplies front," said
Juan Pablo Fuentes, oil economist at Economy.com. "But the momentum has
been for oil prices to increase over the past few days, as concerns
about Greece, Spain and Portugal have diminished."
Government reports showing rising U.S. jobless claims as well as a jump
in producer prices dampened expectations for the economy and energy
demand.

But "on the energy side, a big rise in crude inventories was offset by a big drop in distillate supplies," Fuentes said.

The Energy Information Administration said U.S. crude stockpiles rose
by 3.1 million barrels in the week ended Feb. 12. Analysts polled by
Platts had expected a buildup of 1.65 million barrels.
The EIA also said gasoline supplies rose by 1.62 million barrels, more
than the 1.5 million barrels forecast in the Platts survey.
However, distillates fell by 2.94 million barrels on the week, far
greater than the 1.6 million barrels that analysts had projected.
In a separate report late Wednesday, the American Petroleum Institute
reported that crude supplies declined by 63,000 barrels last week, with
gasoline higher by 1.4 million barrels and distillates higher by 1.28
million barrels.

Gasoline for March delivery rose 4 cents to $2.05 a gallon, and heating
oil for the same month was up 3 cents, or 1.5%, at $2.04 a gallon.


Stephen Gallo of Schneider Foreign Exchange tells MarketWatch's Bill
Watts that the hard-hit euro is in for more pressure as markets deal
with sovereign debt fears within the 16-nation single-currency region.

Market dynamics

"The market accepts that U.S. demand is going to be poor," said Tom
Kloza, chief oil analyst at the Oil Price Information Service.
"Investment money is still looking to emerging economies and their need
for more oil as they industrialize."

Earlier Thursday, U.S. economic data showed the number of people filing
initial claims for state unemployment benefits rose by 31,000 to a
seasonally adjusted 473,000 last week, with wholesale prices pegged to
have risen a stronger-than-forecast 1.4% on a seasonally adjusted basis
in January.

On the upside, manufacturing activity in the Philadelphia region improved in February for a sixth consecutive month. The gains in energy futures also took place in spite of a rising dollar, which typically weighs on commodities.

"We warned weeks ago that if the dollar rose on shifting perceptions of
[economic] recovery then the inverse relationship between oil and the
dollar would change and the two would move in tandem," said Mike
Fitzpatrick, vice president of energy trading at MF Global. "Clearly,
sentiment has shifted over the last few days, toward optimism."

Natural gas skids

Bucking the trend in energy, natural-gas futures traded lower.
The EIA said natural gas in storage fell by 190 billion cubic feet in
the Feb. 12 week. Analysts polled by Platts had been looking for a
drawdown of between 188 billion and 192 billion cubic feet.

Natural gas for March delivery was last down 19 cents, or 3.6%, at
$5.20 per million British thermal units in electronic trading.

Financial Times
By Robert Wright in London
Published: March 4 2010 00:33 | Last updated: March 4 2010 00:33

Consolidation among oil tanker owners will accelerate as a result of tough shipping and financial market conditions, one of the sector’s key figures has
predicted.The comments by Morten Arntzen, chief executive of New York-listed Overseas Shipholding Group, come amid a glut of sharp profit falls or the large tanker operators.Mr Arntzen said that banks’ reluctance to lend would force weaker owners to sell out to stronger ones. OSG has the world’s second-largest tanker
fleet by ship numbers.The process would favour listed companies that could raise capital on public markets, Mr Arntzen went on. His views contradict traditional shipping market wisdom, which values the benefits of the secrecy enjoyed by the sector’s hundreds of private owners.“Finally, being a public company has value,” Mr Arntzen told the Financial Times. “The advantage is the access to an additional source of finance other than the traditional ship mortgage.”Declining demand for oil and oil products and an oversupply of ships have hit large tanker operators’ profitability. OSG itself on Monday revealed net profit down 78 per cent to $70.2m on turnover down 36 per cent to $1.09bn.Frontline, the market leader, announced net profit down 85 per cent to $103m on Friday, and AP Moller-Maersk is likely to announce either severe profit falls or losses at its tanker division on Thursday because of its heavy exposure to the troubled market for oil product tankers.

However, Mr Arntzen insisted large, publicly-owned companies such as his would have significant advantages in the next few years over the hundreds of small, privately-held companies – many Greek – that still form the bulk of the world tanker fleet.Large operators have gradually been buying up rival companies or their ships in recent years as growing environmental concerns have pushed major oil companies to prefer bigger, safer operators. However, Mr Arntzen said that process would speed up as small operators found the shipping banks on whom they relied for finance were no longer willing to lend.“The companies that can tap the bond market, the equity market – they have an advantage,” Mr Arntzen said. “That will lead to an acceleration in consolidation.”OSG was exploiting its relatively stronger financial position by watching out for problems with the payments on ships ordered by financially fragile competitors, Mr Arntzen told the Marine Money Hamburg ship finance forum last week. The company bought a pair of completed oil product tankers from one shipyard after their intended owner was unable to finance its final pre-delivery payment.Growing regulatory pressure on banks would only increase their tendency to prioritise lending to the biggest, best-capitalised companies, Mr
Arntzen told the FT.“The regulatory thing is going our way,” he said.

Shortage of capital remained a far bigger problem for most tanker operators than the market downturn, Mr Arntzen insisted. Many owners are struggling to finance instalments on orders placed with shipyards during shipping’s 2001-08 boom.“The tanker market is just poor,” Mr Arntzen said. “The real crisis is in the banks.”

Cushing is full and time-spreads are collapsing

Posted by Izabella Kaminska on May 10 16:59.

Commodities guru John Kemp at Reuters has again been focusing on full stocks at Cushing Oklahoma and the continuing widening contango, in his latest market commentary. A bit of background: Cushing is the main physical delivery point in the US for Nymex WTI crude. The inability of traders to deliver easily into the hub has the effect of depressing the time-spread between the front-month and second-month, as traders look to close out positions which would otherwise force them to take delivery without the means to store oil.

As he wrote on Monday:

Amid the general carnage in oil prices over the last week, the calendar spread for the second half of the year (CLZ0-CLM0) has continued to surge wider — hitting more than $8.20 per barrel in trading earlier today. And here’s a quite exrtaordinary chart showing the second-half calendar spread.

On that note, the latest Genscape report — which tracks Cushing stocks with James Bond-esque spy techniques, involving infrared lasers and the like — would suggest that official data is actually underestimating the site’s current used capacity by some 2m barrels. The latest inventory data from the EIA released on Wednesday, for example, showed Cushing stocks rose by 1.6m barrels in the week to a record 36.2m barrels.

Genscape data, on the other hand, has it at 38.4 barrels. Which is perhaps why WTI futures failed to rally too hard on Monday, despite the European emergency rescue.

http://www.etf-corner.com/markets/2010/06/ung-the-base-.html

UNG is forming a base indeed. Since the weather has warmed Nat Gas has sold off significantly. However, it has rallied significantly over the past month.

Chanos Short on Oil Cos, But Not BP
Noted short-seller Jim Chanos says he's short some of the major oil companies, but not British Petroleum.

"We're not involved in any way shape or form in the crisis," Chanos told Bloomberg TV Thursday. "We have looked at BP, but all of us are shaking our heads; I think there are too many unknowables there."

Chanos is the founder of hedge fund firm New York-based Kynikos Associates.

The interview with Bloomberg took place a day after President Barack Obama announced BP had agreed to set aside a $20 billion fund to compensate individuals and businesses harmed by the ongoing Gulf oil spill.

Back to the other oil companies, which Chanos declined to name, the hedge fund manager said a number of them hadn't replaced reserves in years and, at the same time, there revenues hadn't increased.

"Meaning they're borrowing against their dividend," and, in effect, liquidating, Chanos said.

Great Editorial. I made this rookie mistake in March/April, not realizing backwardation comes into play. Live and Learn I say.

===============================================================================

By Renisha Chainani
A sharp move in natural-gas-market contracts has caught traders' attention and sparked talk that at least one market participant may have been caught on the wrong side of a trade.

The March-April 2011 spread, a benchmark relationship because it covers the period from winter to spring, has surged as much as 134% this month and 204% since early May (i.e., since Gulf Oil Spill). And we have also seen the spread in the Oct-Nov halved from 45 cents to 19 cents since early May.

In a highly unusual move for this time of year, the price of natural gas for delivery March 2011 on Tuesday jumped to 43.3 cents more than the price for delivery in April. The gap, which was just 24.8 cents on last Friday, narrowed slightly to 36.8 cents on Wednesday. Trading volumes in both contracts have spiked.

Gas prices are typically higher in March, the last month of winter, than in April, when spring temperatures limit the demand for natural gas for heating. A trader expecting an unusually cold winter, for example, would bet on a wide spread between March and April gas prices.

The trade is the same bet that brought down Amaranth Advisors LLC, a Greenwich, Conn., hedge fund, in September 2006. Brian Hunter, a Canadian trader at the firm, placed an enormous bet on the spread on the belief that the March contract would be traded at a huge premium over April. But the spread narrowed from $2.5 to 42 cents that fall, costing the firm $6 billion.

This is peculiar behavior, given that supplies are currently building at a comfortable pace, i.e., whatever the knock-on to gas demand from the situation in the Gulf, it will likely not affect this season’ s refills nor next winter’s deliveries. Moreover, Natural gas U.S. inventories has risen to their highest level for this time of year in June since at least 1993, when the government began collecting data.

This then begs the question: are other factors impacting the price path of these spreads? After all, once these spreads lock into a trend they stay on trend, regardless of the underlying fundamental picture. Until last week, the March-April 2011 price spread was very thinly traded because long-term weather forecasts are unreliable, and traders typically don't start making bets on winter gas prices until later in the year.

However, both of these spreads of currently decoupled from their respective trends. We haven’t seen these particular spreads behave in such a manner since an Amaranth morphed a $9 billion hedge fund into a $3 billion fund in August 2006. In September 2006, when Amaranth had to reverse its trades, the March-April spread tumbled to as low as 42 cents per million Btu from as high as $2.5 in August. At the time, the spread measured the difference between March 2007 and April 2007 prices

The move in the March-April spread probably wasn't caused by a change in weather forecasts or supply predictions, but there can be two reasons:

CASE I: A trader trying to exit a sizable bet on the spread after a bad wager on something else forced the trader to meet margin calls.

CASE II: Major traders may also be anticipating the U.S. moratorium on offshore drilling in the Gulf of Mexico following the Deepwater Horizon rig explosion will cut gas supplies and alternatively, it may be the result of a single speculator taking a larger-than-normal position contrary to the consensus.

MOSCOW (Commodity Online) : Former Soviet ally, Bulgaria on Wednesday agreed to participate in the South Stream project, and the agreement will be signed on July 16.

According to Russian Deputy Prime Minister Viktor Zubkov, Russia and Bulgaria have reached a complete understanding and all issues that are necessary were solved. The South Stream is a gas pipeline to transport Russian gas to western Europe bypassing Ukraine. The offshore part, operated by Russia's Gazprom and Italy's ENI, will run from Russia's mainland under the Black Sea to the Bulgarian coast.

Zubkov added that Russia had agreed with the Bulgarian side on using pre-existing gas pipes on the territory of the country, and that gas volumes passing through Bulgaria will be increased by 63 billion square meters.

Russia and Bulgaria signed an agreement on the South Stream project in January 2008, and both financial and technical preparations were scheduled to be put together by mid-2010. Last June, Gazprom announced the possibility of re-routing the South Stream through Romania, instead of Bulgaria, after Borisov said that his country will not proceed with previous agreements to build a joint gas line with Russia and Greece.

===========================================================

Russia continues to toy with Ukraine on gas pipeline issues. Though in this type of situation, what Russia wants Russia gets.

July 9 (Bloomberg)--KKR & Co., which led the record takeover of electricity provider TXU Corp. in 2007, is making a new bet on rising energy prices, this time without the leverage. The private-equity firm is teaming up with David Rockecharlie, previously co-head of the energy group at New York-based Jefferies Group Inc., and Claire Farley, a former adviser to the securities firm, to build an exploration business for unconventional energy, according a person briefed on the plan. The business would prospect for fuel such as gas trapped in shale and coal beds under parts of Appalachia and Texas, said the person, who asked not to be named because the plan has yet to be formalized.

KKR, which is sitting on $12.6 billion in unused capital commitments, joins Exxon Mobil Corp. and BP Plc, the biggest owners of shale-gas deposits in the U.S., in betting that energy prices will rise and make the costly method of extracting fuels profitable. KKR’s first investment in shale gas returned a fourfold profit in a year. Unlike the TXU deal, which struggled under a $38 billion debt load, the latest energy bet will use mostly equity to produce returns. “The promise of shale and what it means to domestic oil and gas production is significant, but the cost to get there is very significant too,” Marc S. Lipschultz, a partner at New York-based KKR who oversees energy and infrastructure investments, said in an interview. “That is going to present opportunities for firms that have the right level of expertise and commitment.”

Fourfold Gain

The asset manager is seeking alternatives to leveraged buyouts after those deals came to a halt with the credit crisis. Private-equity firms announced $32 billion of transactions for the first half of this year, less than one-tenth the volume in the same period in 2007, according to data compiled by Bloomberg. KKR, run by Henry Kravis and George Roberts, started investing in shale gas when it backed East Resources Inc. with about $350 million a year ago. The company agreed on May 28 to sell a majority stake to Royal Dutch Shell Plc, giving KKR a fourfold return on its investment, said two people briefed on the agreement who asked not to be named because the information is private. Shell’s $4.7 billion agreement with East Resources was the biggest among 11 U.S. shale-gas transactions totaling $17.9 billion in the first half of this year, according to data compiled by Bloomberg.

Last month, KKR said it plans to invest as much as $400 million in a partnership with closely held Hilcorp Energy Corp. to develop a shale deposit in Texas. KKR will hold 40 percent of the partnership, with Hilcorp owning the rest and managing operations.

‘Demand for Capital’

“We’re going to see a lot more private equity flow into this space,” Ralph Eads, chairman of energy investment banking at Jefferies Group, said in an interview. “There’s huge demand for capital and that capital’s not all going to come from the public capital markets.” Unconventional gas is an industry term for the fuel trapped in shale formations, coal beds and sandstone rock. Tapping those deposits helped lift U.S. gas output by 3.9 percent to 18.3 trillion cubic feet last year through October and make the country the largest producer before Russia. Shale-gas production will probably account for a third of the U.S. total by 2035, compared with 17 percent in 2008, the U.S. Energy Information Administration said in a May 11 report. Shale gas “is a total sea changer to the domestic and global energy industry,” said Andy Safran, a senior energy and utilities banker at Citigroup Inc.

Blackstone, Carlyle

KKR has been among the more active private-equity players in unconventional energy. Funds managed by New York-based Blackstone Group LP on July 6 announced a $200 million investment in Bear Tracker Energy LLC, a Denver company that focuses on the so-called midstream of transporting and processing gas, according to a company statement on July 6. Blackstone, the largest private-equity firm, has no direct investments in shale producers. Carlyle Group, based in Washington, manages energy investments through partnerships with Riverstone Holdings LLC, a private-equity firm that oversees $17 billion in six funds, according to its website. On May 4, their funds contributed to a $200 million investment in Enduro Resource Partners LLC, an energy prospector led by the former chief executive of Encore Acquisition Co., which Denbury Resources Inc. bought in March for $4.5 billion.

‘Energy Bubble’

KKR wants to form partnerships or buy stakes in independent exploration and development companies, said a person briefed on the plan who asked not to be named because the information is private. These operations produce about 60 percent of U.S. natural-gas output, according to Ellen Hannan, an analyst at brokerage Weeden & Co. in Greenwich, Connecticut. Exploration of unconventional energy first caught KKR’s attention when concerns about natural-gas supply caused prices to surge to a two-and-a-half-year high of $13.577 per million British thermal units on July 3, 2008. The fuel fell to a seven- year low of $2.52 per million British thermal units by September 2009 as consumer demand declined during a recession, stockpiles rose and output increased from new fields in Texas, Oklahoma and Louisiana. “During the energy bubble, we started questioning where the world was going and how we could participate when pricing got rational again,” said Lipschultz, who joined KKR in 1995.

$1 Billion Fund

KKR opened a Houston office last year and bought a non- controlling stake in Warrendale, Pennsylvania-based East Resources. The company had one well 11 months ago in the Appalachian basin’s Marcellus Shale, an area the Department of Energy estimates may have enough gas to supply U.S. needs for more than a decade. By the time East Resource’s founder, Terrence M. Pegula, agreed to sell assets to Shell last month, his company operated 75 wells. KKR is also ramping up investments in more traditional oil and gas businesses. In February, KKR agreed to back Premier Natural Resources LLC, a Tulsa, Oklahoma-based startup that plans to make energy investments in North America. The firm is also seeking $1 billion in commitments for a natural-resources fund, according to a person briefed on the plans. Kristi Huller, a spokeswoman for KKR, declined to comment on the fundraising.

TXU ‘Disaster’

KKR, which will begin trading on the New York Stock Exchange on July 15, began making energy acquisitions in 1985 with its purchase of Union Texas Petroleum. The takeover of TXU Corp., Texas’s biggest power producer, for $43.2 billion in 2007 was made at the peak of the buyout market, when financing was easier to obtain and rising gas prices made TXU’s coal and nuclear plants more valuable. The electricity producer, which KKR acquired jointly with firms including TPG Inc., lost value as the financial crisis depressed asset prices and energy prices fell. KKR’s valuation of the buyout, described last year as a “disaster” by Dot Matthews, an analyst at CreditSights Inc., was marked down by 70 percent as of March 31, according to a regulatory filing by KKR & Co. (Guernsey) LLP, a publicly listed unit of the firm.

Exxon Mobil and BP are among the major energy companies competing for resources. Irving, Texas-based Exxon in December agreed to buy XTO Energy Inc. for $29 billion, 14 months after abandoning its own drilling program in Texas’s Barnett shale, where XTO got more than a fifth of its output. First Reserve Corp., the energy industry’s biggest private- equity firm, and Nabors Industries Ltd., the world’s largest land-drilling contractor, have invested $1 billion through a joint venture, NFR Energy LLC, that has gas wells in the Haynesville Shale formation under Texas and Louisiana.

“Only time will tell whether these deals are good values,” Hannan said. “It is impossible to know until the fields are developed and the price of natural gas rises. If it doesn’t, the companies better drill a lot of wells.”
===================================================================

This seems like more of a VC play than a PE investment.

The Bespoke Investment Group:

First it was the Nasdaq on Wednesday, and now Thursday it was oil's turn to break below its 50 and 200 day moving averages on the same day. Since 1990, this is the 20th time oil has broken below both moving averages on the same day, so occurrences have been more frequent than with the Nasdaq.

Looking ahead at oil's performance following these occurrences, however, shows that as was the case with the Nasdaq, a break of both moving averages isn't the signal of impending doom that some technicians suggest it is. In the nineteen prior periods, oil has averaged a gain of 1.36% over the next week and a decline of 0.25% over the next month. Over each time frame, the commodity has seen gains 58% of the time

Bloomberg--Natural gas futures fell the most in almost five months as Atlantic storms moved away from production regions in the Gulf of Mexico and milder weather reduced demand from power plants. Gas dropped as much as 5.4 percent as Hurricane Karl was downgraded over the weekend and dissipated in southern Mexico. Hurricane Igor passed Bermuda and was moving northeast, while former Hurricane Julia in the Atlantic lost its tropical characteristics, according to the National Hurricane Center. Gas gained 3.6 percent last week on storm threats.

“People came back in today and saw no damage from Karl, and other storms are not going through the Caribbean basin,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “All of that removed any of the risk premiums that have been placed in the market.” Natural gas for October delivery lost 19.1 cents, or 4.8 percent, to $3.833 per million British thermal units at 12:55 p.m. on the New York Mercantile Exchange, heading for the largest one-day decline since April 29. The futures have declined 31 percent this year, the biggest loser in the S&P GSCI Index of commodities.

A low-pressure system 400 miles west of the Cape Verde Islands has an 80 percent chance of becoming a tropical cyclone during the next two days, according to the center. All five Category 3 Atlantic hurricanes this year stayed away from major Gulf gas production facilities.

Storm Projections

A total of 7.9 billion cubic feet of gas production was shut in from June through August because of storms, lower than the projection of 57.4 billion, the Energy Department said in its monthly Short-Term Energy Outlook on Sept. 8. “This hurricane season hasn’t quite lived up to expectations so there is probably some deflation of some of those fear premiums,” said Cameron Horwitz, an analyst in Houston at Canaccord Genuity. Cooling demand “is falling off and you are transitioning toward heating demand but you are not quite there.”

New York will have a high of around 80 degrees Fahrenheit (27 Celsius) this week, according to AccuWeather Inc. in State College, Pennsylvania. The city had a high of mostly above 90 degrees in the first week of September. About 23 percent of U.S. electricity is generated using natural gas, according to the Energy Department. “You are in between the air-conditioning season and heating season and there is not much demand,” said Tom Saal, senior vice president of energy trading at Hencorp Becstone Futures in Miami.

Drilling Rigs

The number of U.S. gas drilling rigs rose 2 to 982 last week, up 39 percent from a year earlier, Baker Hughes Inc. data showed last week. Horizontal rigs, which are mostly used in drilling for shale gas, rose 1 to a record 912. U.S. gas stockpiles jumped 103 billion cubic feet in the week ended Sept. 10 to 3.267 trillion, the Energy Department reported last week. The storage increase was the biggest weekly gain for this time of the year since 2006. The inventory increase exceeded the five-year average for the first time since April. A surplus to the five-year average rose to 6.2 percent from 5.5 percent the previous week.

To contact the reporters on this story: Moming Zhou in New York at Mzhou29@bloomberg.net;

Bloomberg--Natural gas futures rose for the first time in three days on concern a storm that’s developing in the southeastern Caribbean Sea may move into gas production regions in the Gulf of Mexico. The weather system near the Windward Islands has a 20 percent chance of becoming a tropical cyclone in the next two days, according to the National Hurricane Center. The system may become a major Category 3 storm next week and move toward the eastern Gulf, according to Commodity Weather Group LLC in Bethesda, Maryland.

“Obviously if there is a storm in the Gulf this late in the season it’s going to be a game changer,” said Peter Beutel, president of trading advisory company Cameron Hanover Inc. in New Canaan, Connecticut. “It will catch a lot of traders that are not prepared for it.” Natural gas for October delivery gained 14.8 cents, or 3.9 percent, to $3.97 per million British thermal units at 10:10 a.m. on the New York Mercantile Exchange. The futures have gained 11 percent from a year ago. The storm is moving westward and “environmental conditions appear conducive for some gradual development during the next couple of days,” according to the Hurricane Center. The system has a 60 percent chance of developing into a Category 3 storm on the 5-step Saffir-Simpson scale next week, according to Commodity Weather Group. “The model is incredibly consistent in terms of development,” said Matt Rogers, a forecaster with Commodity Weather.

Gulf Impact

This hurricane season so far has had less of an impact on Gulf gas production than had been projected by the government. All five major Atlantic hurricanes stayed away from the main Gulf gas production facilities. Lisa became this year’s 12th named Atlantic storm today. Packing winds of 40 miles (64 kilometers) an hour, the storm was 530 miles west-northwest of the Cape Verde Islands moving north at 5 mph, according to the hurricane center.

The Energy Department may say on Sept. 23 that U.S. gas stockpiles increased by 79 billion cubic feet in the week ended Sept. 17, according to the median of four analyst estimates compiled by Bloomberg. The five-year average gain is 70 billion. Gas also rose after the Commerce Department reported that U.S. housing starts increased 598,000 at an annual rate in August, up 10.5 percent and the most since April. Economists forecast August starts at a 550,000 pace.

To contact the reporters on this story: Moming Zhou in New York at Mzhou29@bloomberg.net;

Bloomberg--The four major Atlantic hurricanes that spun toward the Caribbean in the past month were fueled by record warm seas and formed in an unprecedented 20 days. With 10 weeks left in the hurricane season, more may be coming.

The storms that were born off west Africa gathered strength by absorbing the ocean’s heat and swelled into Category 4-level hurricanes on the 5-step Saffir-Simpson scale. While none hit land at full speed, each packed winds of at least 131 miles (210 kilometers) an hour, stronger than Katrina’s Category 3 winds when it devastated New Orleans at the end of August in 2005. After Igor churned past Bermuda yesterday and cut power to two-thirds of the colony’s residents, Tropical Storm Lisa formed today in the east Atlantic. While the six-month season is past its statistical peak, forecasters and insurers said warmer seas can lengthen the danger period to property, from beach homes in Florida and the Hamptons to rigs and refineries owned by Royal Dutch Shell Plc and ConocoPhillips in the oil-rich Gulf.

“The hotter the water, the higher the octane level, and there is going to be far more Category 4 and 5 hurricanes,” said Jim Rouiller, a U.S. Air Force meteorologist for 20 years who works for Planalytics Inc. in Berwyn, Pennsylvania. The season may be busy for another month, said Simon Young, chief executive officer of the insurer Caribbean Risk Managers Ltd. “All the ingredients” were in place for major hurricanes to form this year, he said.

‘Nightmare Scenario’

“The nightmare scenario for industry losses is a Miami hit, closely followed by a New York hurricane,” Young said in a telephone interview from Washington. “Gulf oil is a huge issue for the insurance industry. There’s a feeling that if something big happens, there’s going to be some hard times.” The National Hurricane Center predicts 2010 will have as many as 20 storms of at least 39 mile-an-hour winds, meaning they’ll be named, compared with 11 in a typical year. Lisa’s formation today brought this year’s tally to 12. The Miami-based center has identified five major hurricanes in 2010 compared with two in an average season when waters are cooler.

The season runs June through November, peaking around Sept. 10. After that, major storms can and do still form. In 2005, Hurricane Rita’s winds peaked at 178 miles per hour on Sept. 22. The Atlantic has had record temperatures since March and by the end of August a swath of the ocean was 3 degrees Fahrenheit (1.7 degrees Celsius) above average, Gerry Bell, lead hurricane forecaster at the National Oceanic and Atmospheric Administration in Camp Springs, Maryland, said in an interview. The records date to 1854.

Fomenting Hurricanes

Hurricanes gather energy from the warmth of the sea, one of several factors that increase their punch such as having similar wind speeds at various altitudes. This year’s record warmth may help prolong the season as will conditions associated with La Nina, a weather pattern that reduces high-altitude winds that impede Atlantic storm development. Petroleum assets owned by companies including Shell and Exxon Mobil Corp., the biggest oil producers in Europe and the U.S. respectively, pump 31 percent of U.S. crude, 10 percent of its natural gas and account for 43 percent of refining. Rigs typically evacuate workers when a hurricane comes within striking distance, temporarily halting production.

“Preparedness for hurricanes and hurricane seasons is built into all our plans,” David Nicholas, a London-based spokesman for BP Plc, said yesterday in a telephone interview. “It’s part of operating in the Gulf.” The Weather Research Center in Houston has created a model that shows a storm with the strength of Katrina or Rita would damage or destroy about 10 percent of all the oil platforms it passed over, center President Jill Hasling said. Both of those hurricanes peaked at Category 5, the top level, over the Gulf.

‘Might Not Survive’

“You still have a lot of platforms out here, older platforms that might not survive a direct hit by a hurricane,” Hasling said. “It’s the waves that cause most of the damage so you want to keep the waves out of your decks.” Eight of the 10 most expensive U.S. catastrophes were hurricanes, including Katrina, the most costly at $41 billion, according to the New York-based Insurance Information Institute.

Hurricanes “account for the majority of top catastrophes in dollar terms,” said Robert Hartwig, president and economist at the Insurance Information Institute, a New York-based trade group. Category 5 storms, the most destructive, have winds greater than 155 mph. The four Category 4 storms so far this year were Danielle, Earl, Igor and Julia.

‘Heat Effect’

Swiss Reinsurance Co., the world’s second-largest reinsurer, is among the insurance companies gearing up their research into the heat effect, one of several natural phenomena that intensify hurricanes in light of scientific reports that forecast a warming of oceans this century. Climate change may add 50 percent to the storm damage costs incurred by some Caribbean nations over the next two decades, Swiss Re said last month.

The concern of insurers and forecasters is supported by the intensity and frequency of hurricanes catalogued this year by the hurricane center. Prior to this year, 1958, 1969 and 2005 were among the warmest for the Atlantic. While the average season produces two major hurricanes, 1958 and 1969 had five and 2005 spawned seven. “Warmer than normal water temperatures, with all other factors being equal, do provide the opportunity for hurricanes to reach higher intensities,” said Chris Landsea, science and operations officer for the National Hurricane Center.

Sahara, Wind Shear

Still, even when seas are warm, dry air from the Sahara and high wind shear -- meaning wind speed changes more with altitude -- both can hinder hurricane formation, said Julian Heming, tropical prediction meteorologist at the U.K. Met Office in Exeter, southwest England. In the Gulf of Mexico, the consequences of major hurricanes can be devastating. In 2005, Katrina and Rita were blamed with damaging or destroying 167 platforms as well as 535 pipeline segments, according to the Bureau of Ocean Energy Management, Regulation and Enforcement.

Nine months after the storms passed, 22 percent of oil and 13 percent of gas was still shut in, resulting in a loss of 150 million barrels of oil and 730 billion cubic feet of gas, according to the agency. By contrast, Hurricane Ike, a Category 2 storm in the Gulf, destroyed 49 of the 3,800 oil and gas platforms it passed in 2008, according to the federal Minerals Management Service. The Atlantic’s heat and uptick in intense hurricanes are fueling the debate on the role played by global warming.

‘Global-Warming Signal’

“There are always natural fluctuations going on but the long-term upward trend seems to be a global-warming signal,” said Kerry Emanuel, professor of tropical meteorology at the Massachusetts Institute of Technology in Cambridge. Greg Holland, head of the National Center for Atmospheric Research’s Earth Systems Laboratory, and Tom Knutson, a National Oceanic and Atmospheric Administration climate modeler, say the strongest hurricanes will be more frequent as the world heats.

If temperatures rise by 2 degrees Celsius by 2100, it will stoke the formation of Category 4 and 5 hurricanes though the number of weaker systems will drop, according to Knutson, who in January co-wrote a paper on the topic in the journal Science. “Building up over the course of a century, we basically saw a doubling” in the frequency of Category 4 and 5 hurricanes, Knutson said. That “translates into a 30 percent increase in damage potential, not taking into account any sea- level rise.”

To contact the reporters on this story: Brian K. Sullivan in Boston at bsullivan10@bloomberg.net Alex Morales in London at amorales2@bloomberg.net

http://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/commodities/2010/10/19/Crude_Oil_Shrugs_off_Decline_in_U.S._Industrial_Production_to_Rise_Gold_Stages_Significant_Rebound_to_Mai.html

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I might agree with their mid term out look but I think some noise can see prices test 83 again in the next day or so!

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Crude Oil Shrugs off Decline in U.S. Industrial Production to Rise, Gold Stages Significant Rebound to Maintain Recent Correlations
Tuesday, 19 October 2010 06:51 GMTBy Ilya Spivak, Currency Strategist and Sumit Roy,
A surprise drop in U.S. industrial production could not stem recent bullish momentum, with crude and equities rising to kick off the new week. Similarly, gold rebounded from earlier losses after the U.S. greenback fell modestly.
Commodities – Energy
Crude Oil Shrugs off Decline in U.S. Industrial Production to Rise
Crude Oil (WTI) - $82.80 // $0.28 // 0.34%
Commentary: Both crude oil and equity markets shrugged off an unexpected decline in U.S. industrial production, instead latching onto bullish momentum and sentiment to register yet another up day. Crude oil added $1.83, or 2.25%, to close at $83.08, while the S&P 500 stock index added $8.52, or 0.72%, to settle at 1184.71.
U.S. industrial production fell 0.2% in September, contrary to the expectation for a 0.2% gain. It is important to understand that a slowdown in the U.S. economy is anticipated. The rocky financial markets that we witnessed just a couple months ago were a reflection of that, but now traders are more comfortable that a slowdown is all this will end up being, not a double dip recession as had been earlier feared. While economic data out of the U.S. will likely remain choppy— especially data on the labor market—the global economy remains on much firmer footing as evidenced by strong data out of emerging markets.
Look for crude oil to continue to take its cues from the evolution of the economic outlook and the performance of equity markets. But while the trend is for higher prices, we could get a round of profit taking at any time as traders book huge gains accumulated over the past several weeks. In that vein, we would look to add long exposure on a dip toward the mid-$70’s.
Technical Outlook: Prices continue to consolidate, with positioning effectively unchanged for the past ten days after prices put in a Bearish Engulfing candlestick pattern following a test of resistance at Augusts’ swing near the 83.00 figure, hinting that a move lower is ahead. A break below initial support at $81.20 – the 23.6% Fibonacci retracement of the latest upswing – exposes the 38.2% and 50% levels at $79.21 and $77.60, respectively.

Commodities – Metals
Gold Stages Significant Rebound to Maintain Recent Correlations
Gold - $1368.65 // $0.20 // 0.01%
Commentary: What was shaping up to be a notable down day in gold actually turned into an up day as the metal recovered all of its overnight losses. Gold ended the session $0.05 higher to settle at $1368.45. The up day means that gold maintained its strong positive correlation with U.S. equity markets and strong negative correlation with the U.S. Dollar. Specifically, the one month daily correlation between gold and the S&P 500 is 0.94, while the same correlation between gold and the U.S. Dollar Index is -0.96. As long as the Dollar keeps declining, it looks as if momentum will carry gold even higher, possibly through $1,400. There needs to be a meaningful correction in the Dollar for there to be a corresponding correction in gold.
That being said, while gold and the Dollar are exhibiting a strong inverse relationship at the moment, back in August they had a strong positive correlation. The fact is that gold has been on a tear for months, latching onto varying catalysts along the way. Right now it is the Dollar, but long-term, we have observed that the underlying impetus for the bull move in gold has been a continuous large influx of investment capital into the metal by way of exchange traded funds.
Technical Outlook: Prices have found interim support at the bottom of a minor rising channel in place since late September. However, negative RSI divergence continues to point toward the likelihood of a larger downswing ahead, with a break of the channel bottom (now at $1360.60) exposing the 23.6% Fibonacci retracement of the 7/28-10/14 advance at $1332.99.
Silver - $24.33 // $0.01 // 0.04%
Commentary: Like gold, silver recovered earlier losses to settle nearly unchanged on the day. Illustrating just how volatile this metal has been, the session’s range was a low of $23.73, while the session high was $24.50. And this type of range seems to be par for the course recently.
The gold/silver ratio now stands at 56.3, the lowest level since August 2008. (The ratio measures the relative performance of gold and silver. A higher number indicates gold outperformance, while a lower number indicates silver outperformance).
Technical Outlook: Prices are re-testing support-turned-resistance at the bottom of a rising channel set from late September that was broken yesterday. Renewed selling will target the $23.50 level, with a break below that exposing rising trend line support at $22.72. Alternatively, a move back into the channel threatens a re-test of resistance near the $25.00 figure.

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October 21, 2010 REPORT-DRIVEN LOSSES

November futures exhibited its typical Thursday trading gymnastics when it has had to deal with bearish inventory reports. The market cascaded lower upon the release of EIA storage figures and finished down sharply on the day. The EIA reported a build of 93 Bcf, well ahead of last year’s 23 Bcf and the five-year average of 54 Bcf. A Reuters poll estimated the build at 89 Bcf. In the immediate term downward technical wave count objectives have been met, but with little in the way of supportive factors on the horizon, it remains to be seen whether the Elliott Wave and retracement analysts will have to re-think their wave counts or the market is truly ready to put in a bottom.

At the end of the day November futures tumbled $0.171 to settle at $3.368 and December skidded $0.143 to $3.750. December crude oil dropped $1.98 to expire at $80.56.

The physical market didn’t follow the futures lower, at least for now. Near term gas into TransCo Zone 6 fell $0.02 to $3.75 and gas at the Henry Hub was flat at $3.46. Prompt gas into the Chicago citygates rose $0.03 to $3.64.

Market technicians see the market at a stage where the big question is whether it can start some kind of bottoming action. The time is past for a seasonal bottom, and that raises a bigger question of whether the current fundamentals can trump historical seasonality.
“Back in October of 2009, we outlined the case for a rally to $6.363 followed by a decline to $3.253 for sometime in Q3/Q4 2010. Well we are here. The question now: can Natgas carve out a bottom?” queried Brian LaRose, technical analyst with United-ICAP. LaRose sees “a massive cluster of support stretching from $3.410-$2.747” and views “scale down buying as the best course of action. That said, we still like working sell stops below $2.455.” In the near term LaRose puts resistance at $3.480 and $3.555 and support at $3.310 and $3.230.

The tropical weather season continues. Not only is the National Hurricane Center following Tropical Storm Richard, but two other areas are under surveillance as well.

At 8 p.m. Richard was located 240 miles south of Grand Cayman and was sporting winds of 40 mph. It was meandering to the south-southeast at 2 mph, but projections showed it heading eventually to the Yucatan Peninsula.
A second area of broad low pressure south of the Cape Verde Islands was given a 30% chance of reaching tropical storm status within the next 48 hours, and a third low pressure system 1200 miles east of the Lesser Antilles was given a 10% chance of development.

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It is a good sign Spot prices remained firm. Once Spots find a botton/firmness Futures should as well. The first line of this report is priceless...

http://www.theoildrum.com/node/8064http://www.theoildrum.com/node/8064

Peak Coal