A Giant Bet Against Natural Gas Is Blowing Up
- Thread starter dealmaker
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I completely agree with the underlying concept, but I feel like NG is just too easy to ramp up now with fracking and has too many small players to avoid periodic overcapacity issues. With oil it's big projects telegraphed out years in advance so new players are discourage from entering if it's clear that a certain amount of capacity will be coming online and they're big corporations with sophisticated capex arms making the decisions. With gas it's just a gold rush every time prices go up followed by overproduction followed by crash, and the players are too unsophisticated to understand what's happening, the markets too opaque to see exactly what capacity is coming online or at least see it far enough in advance to make capex decisions based on it, or they think they'll be able to make enough before it crashes that they'll recoup their investment and profit before the music stops. Kind of like subdivision developers. So it does seem to me inevitable that we'll see periodic supply driven crashes even if the underlying demand continues to increase steadily, which also seems inevitable. I just don't have enough confidence in my timing to trade that at this point, although I would think if you had a hedge fund with a good research division you could predict it pretty well.
Yeah, I am not long NG personally and I don't feel especially emboldened to make such a bet. The amount of supply available in North America is just ridiculous. And they are letting reserves in the Gulf, the Dakotas, in Alaska, and Canada go untapped for now. Jerry Jones bought in on the production level and on a pipeline level which is a different ballgame than being long a Natural Gas instrument as a speculator. Commercials who are net long have some distinct advantages compared to outright long speculators.
The essential truth to Commodities is that overwhelming supply makes picking market bottoms downright fatalistic. It's a supply vs. demand game.
The essential truth to Commodities is that overwhelming supply makes picking market bottoms downright fatalistic. It's a supply vs. demand game.
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Well, here's the problem; AGT Citygate spot prices can skyrocket and Henry Hub prices can nudge up. And that's a problem for you unless you have the deep pockets to buy and hold swaps.
It's always a very temporary dislocation that's regional in nature. They are building out the NorthEast pipelines in order to keep up with power generation demands. Having said that, Con Edison is restricting new construction Nat Gas installations until the State of New York approves new pipelines in the state.
Natural Gas electricity generation went from 15% in 2000 to 48% in 2017 in the Northeast US.
It's always a very temporary dislocation that's regional in nature. They are building out the NorthEast pipelines in order to keep up with power generation demands. Having said that, Con Edison is restricting new construction Nat Gas installations until the State of New York approves new pipelines in the state.
Natural Gas electricity generation went from 15% in 2000 to 48% in 2017 in the Northeast US.
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And while what you say is true, the funky winters in the Northeast do have an impact at the Henry Hub. How often do we see NG prices DROP through X-Mas? Weather patterns this year will probably be doubly important this year, inclusive of the reasons you mentioned regarding new pipelines.
And maybe Columbia Gas won't blow up a few more neighborhoods before Thanksgiving. That would be a relief (valve).
OMG, did you just see that? Do you see the humor? Who is the funniest crazy geek ever? ROFL
I've seen spot Agonquin Citygate spike 120% and Henry Hub go up 1%. Again - the physical storage and pipeline hubs are everything when it comes to weather related problems. Again - unless you have access to the swaps market or the physical market your Henry Hub-based instruments aren't going to get the juice you're looking for.
Natural Gas sitting 2,500 miles away is not completely but somewhat irrelevant when it comes to ten days of really cold weather. Now if you have two or three months of really cold weather that's another matter.
Natural Gas sitting 2,500 miles away is not completely but somewhat irrelevant when it comes to ten days of really cold weather. Now if you have two or three months of really cold weather that's another matter.
Indeed, this be true. Will keep you apprised of what my knee tells me as we head into winter.
