Posted on 12/12/2003 6:56:56 PM PST by NormsRevenge
WASHINGTON (AP)--A 46 percent surge in the price of natural gas since Thanksgiving has been so startling, one analyst has suggested the futures markets should be investigated.
Natural gas for January delivery rose surged 60.6 cents, or 9 percent, Friday to $7.221 per 1,000 cubic feet on the New York Mercantile Exchange. It was the highest close since Feb. 28, when prices settled at $8.10, and was $2.30 above the Nov. 26 close.
As a result, consumers could see higher energy bills as early as next month, analysts said. Any increase won't be nearly as severe as the recent run-up in futures prices because utilities sign long-term contracts for the bulk of their winter fuel over the summer.
Explanations for the rally vary, but traders are virtually unanimous in acknowledging that they were caught off guard when prices first began rising sharply at the beginning of the month. Sure, the barometer dropped and snowflakes fell--and another winter storm could hit the Northeast this weekend--but the nation's supply of natural gas is adequate for this time of year, analysts say.
``Any of us that are in the business and see the amount of natural gas in storage argues for a much lower price,'' said John Kilduff, senior energy analyst at Fimat USA in New York.
Kilduff said, however, that two consecutive weeks of higher-than-anticipated consumption is forcing traders who expected prices to be relatively low this winter to cover their bets. ``It's a brutal free-market economy and I think fears of supply (shortages) going forward are what's being priced into this market,'' Kilduff said.
Ed Silliere, a trader at Energy Merchant LLC in New York, said the markets are also factoring in the expectation of higher demand stemming from an improving economy.
``You've got guys holding onto supply who don't want to give it up because they think supplies might be tight later in winter,'' and that's forcing buyers to bid up the price, Silliere said.
Maybe so, but Oppenheimer & Company senior energy analyst Fadel Gheit said natural gas price levels and volatility don't seem consistent with market fundamentals.
``I would like to see (New York Attorney General) Elliott Spitzer take a closer look at the market,'' Gheit said, adding that residential and industrial consumers are paying more for no good reason. ``Gas prices in my view should not be at $7,'' Gheit said. ``There is no supply shortage.''
Spitzer has been spearheading the recent examination of trading practices the mutual fund industry and he led last year's landmark $1.4 billion settlement with Wall Street's largest brokerages over conflicts of interests.
On Thursday, the Energy Information Administration, the Energy Department's statistical arm, reported that as of Dec. 5 there was 2.984 trillion cubic feet in storage. That compares with 2.794 trillion cubic feet a year ago.
Nymex spokeswoman Nachamah Jacobovitz said the latest price volatility has received extra attention from the market's regulators, but that no improper trading practices have been observed.
Because of the problem the gas company turned off my meter when I had them out to check on the bad smell by the furnace on Wednesday; from 4:00 P.M. to about 3:30 the next day I was heating the house (about 66 degrees F) with my electric oven.
I'm going to scan my next bills very closely.
There is and has been by the EnvironMental CommuNutty!!! (but you knew that)
The mkt participants remember the respective disasters they suffered during the winters of 2000-2001 and 2002-2003, and, rather than repeat them, have swung rather too far over to the other side, the ''we'd better buy it now than wait'' team.
In 3 to 5 weeks, we'll know if their fears are justified. There is forecast (rightly or wrongly, I've no clue) a Siberian Express due on or about 22 December. 10-day+ forecasts, in my experience in the NG mkt, are about 40% accurate -- but LARGE numbers of players, both users and specs, simply will no longer wait to find out about the accuracy.
It's very curious in one sense. We entered this heating season with 3.35 (give or take) TCF in the ground, and Canada nearly full up, too. But, the first cold patch and the first East Coast snowstorm (which, btw, generates far less NG usage than a dry mass of polar air), and the mkt goes bazoo.
Market memory, no more and no less. If January should prove out to be down 10-15% in HDDs compared to the 5- or 3-year averages, we may easily see NG down $3.00, even possibly $4.00 per MMBTU by 15-20 February.
BTW, to be fair -- if we should see HDDs from now to, say, 16 January, well above the multi-year averages, and drawdowns in storage above, too, we can **EASILY** see $15 spot NG, even over $25 in certain areas.
The ball is up in the air; NG is not, at this time, even a marginally tradeable mkt, but one fit only for gamblers.
FReegards, and a very Merry Christmas to you!
Funny you should mention that.This was all over the local news yesterday.
Nikiski plant scores success converting gas to liquid
BREAKTHROUGHS: But BP claims pipeline is still best way to move fuel Outside.
By WESLEY LOY Anchorage Daily News
(Published: December 12, 2003)
A Nikiski test plant is making breakthrough advances in economically converting natural gas into liquid form, a technique that could bring vast quantities of so-called stranded gas to market around the globe, a BP engineer said Thursday.
As for using the technology for North Slope gas, however, the engineer and a BP executive said flatly: Forget about it.
That agitated one state lawmaker and others who questioned BP's motives in erecting the Nikiski plant.
Speaking at a breakfast meeting of contractors who serve the oil industry, BP engineer Steve Fortune and Ken Konrad, vice president for Alaska gas development, said the London-based company believes a conventional gas pipeline across Canada to the Midwest is a better option than a large gas-to-liquids plant on the Slope.
It's a better idea, they said, even though liquid gas could flow down the existing 800-mile trans-Alaska oil pipeline to the tanker dock at Valdez.
And Konrad believes a gas pipeline, an economic holy grail Alaskans have been chasing for decades, is nearly at hand.
"My assessment is we're closer than we've ever been," Konrad said after BP's presentation Thursday at the Petroleum Club in Anchorage.
BP spent $86 million to construct a chemical plant at Nikiski to hone technology for turning gas into a liquid that stays fluid without the aid of pressure or supercooling. The process dates to before World War II and is expensive, but BP and several other major oil companies have recently made advances as global gas demand has intensified.
Recently, two oil companies announced plans to build large gas-to-liquid plants in Qatar, a gas-blessed Middle East state. Shell in October signed a deal for a $5 billion plant capable of making 140,000 barrels per day of GTL products. And four days ago, Conoco Phillips, which like BP holds rights to a big slice of the North Slope gas, announced a similar GTL project in Qatar.
BP began operating its Nikiski test plant in July, making about 300 barrels a day. Using compact and secret components, it has shaved a big part of the cost off the GTL conversion, said Fortune, who helped design the plant.
"We're actually delighted with the technology," he said. "It's working really well."
BP and a partner plan to use what they've learned from the Nikiski plant to develop or license $1 billion plants for making 30,000 barrels a day of synthetic crude oil good for making clean-burning diesel and other refined products.
But no such plant is planned for the North Slope, where giant streams of natural gas that come out of the ground with oil are injected back into the ground for storage for lack of a way to get it to market.
Hopes for marketing North Slope gas have flared up for more than 25 years, and the flame is burning hot again now. The oil companies have gone to Congress seeking tax breaks and loan guarantees for the pipeline to the Midwest. And Gov. Frank Murkowski has called for the North Slope producers to come forward and negotiate tax and royalty rates for that project.
Konrad on Thursday said BP has studied all the options for bringing the Slope's estimated 35 trillion cubic feet of gas to market, and the best is building a pipeline to the Lower 48.
It's not simply a matter of finding the least expensive way to transport the gas, he said. It's got to be profitable enough, Konrad said.
Better places for GTL, he said, are countries like Bolivia, which has lots of natural gas next to a thirsty market for diesel that could be made from the gas.
"The stranded gas is right there, and the market is right next to it," Konrad said. That's not the situation in Alaska, he said, which has abundant gas but relatively small local demand.
Other impediments to doing GTL on the Slope include the problem of keeping the relatively clean liquid gas from mixing with crude oil as it moves down the trans-Alaska pipeline, Konrad said.
BP representatives have consistently said the Nikiski plant was not intended as a prelude for a much larger plant on the North Slope.
Yet it seems "a little bit bizarre" that BP would have built the test plant if it didn't intend to try GTL on the Slope, said Tom Marshall, who heard BP's talk Thursday. Marshall is a former chief petroleum geologist for the state and the man credited with spotting the oil potential of Prudhoe Bay in the early 1960s.
State Rep. Eric Croft, an Anchorage Democrat who has long questioned why oil companies including BP, Conoco and Exxon Mobil have taken so long to move Alaska gas to market, said he figured the Nikiski plant was nothing more than a delaying tactic.
BP and other oil companies are too busy developing their holdings elsewhere in the world while sitting on North Slope resources, said Croft, who had expected BP to announce that its GTL plant was a bust.
"It's almost more insulting to say it works really well but we're not going to do it here," he said.
Exactly. Quite stupid when there is a 500 years of coal in the ground in the US.
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