Natural gas - where is the bottom

Hey Bone:

Help out a NG newbie here...

1. How would weather HDDs bullishly affect the price of NG?

2. How does a Transco Z-6 basis spike bullishly affect the price of NG?

I know that Transco Z-6 is the pipeline that serves New York/New Jersey. But what is the basis spike that you speak of?

Thanks!
MP.
 
NYC:

Look at the forward Heating Degree Days curve (which is going to be forward building heat demand based upon weather) with your Heating Oil Cracks and your Natural Gas forward price curve, and Voila !

My experience with Transco has been with the NYISO Heat Rates (the spark spread), and there are alot more experienced Nat Gas traders lurking about on ET than I am - my energy forte is more with synthetics, OTC, cracks, power, that type of thing. Papa Roach, where are you?

The basis spike is all about the pipeline access for physical delivery. There is an entire segment within the energy trading universe that deals with trading the physical delivery mechanisms for hydrocarbons - barges, transmission lines, pipelines. And it is monotony interrupted by shear volatility terror on a massive scale.

Note: those straddles are expensive for a very good reason.
 
Commodity values can go to zero if the owner has to pay to take someone else to take it off their hands...

UK gas has gone negative in the past simply because it's illegal to "flare" (burn) the stuff.
 
On a macroview, gas is quite bearish still. There are too many factors to mention in the time I have now. In a nutshell, it is largely being dominated by forced drilling that will continue into the middle of next year to hold lease acreage from 2008 vinatge leases. That and even more prolific results than first thought in some shale plays. This market is priced wrong at the moment (too high), I say this because price is the only thing that can balance the supply/demand relationship now. We have little more demand we can buy in the short term, and prices are not curtailing supply AT ALL. The daily supply is still, even in this mid $3 market, running right up against record output at ~62 BCF/day. The S/D balance is bearish to the tune of roughly 3-4 BCF/day right now, and is why we are showing large storage injections still.

Winter forecasts are not supportive in the least bit as well. Last year had a rather cold winter in the South especially, and we had large draws due to the fact that southerners such as myself cannot stand cold. The forcasts this year are for a quite warm winter, especially in the south and will likely leave a record storage carryout going into next summer (2.0 TCF+). This market is going to be force-balanced via price over the next few months, although I cannot rule out some attempted rally beforehand.

Unless winter forecasts all bust to the much colder side, I cannot see us escaping prices at some point in the lower $2's, probably not until we get into the first Quarter though.
 
Thank you Bone and Roach:
Here's some news from the wires this morning:

Can Nuclear Prevent A Meltdown at Henry Hub?
By Stephen Schork
Posted on Oct. 21, 2010

Stating that natural gas injections have come in higher than normal would be… an understatement.

Last week the EIA reported a 91 Bcf injection, the largest ever recorded for this timestep (and not by a small margin, the previous record holder was an 81 Bcf increase in 1997).

However, natural gas rallied yesterday after reports that Calgary based Encana Corp. released a statement that it would slow production growth due to “unsustainably low” natural gas prices.

This comes on the heels of nuclear capacity utilization dropping to sub 80.00 pct levels and nuclear electricity output dropping 13.04 pct below the same time last month.

Nuclear power plants are currently entering their maintenance season of uranium refueling, similar to the cleaning of petroleum refineries to combat sulfur corrosion.

The question now is whether reduced nuclear generated electricity output will be replaced with natural gas generation?

As written in today’s issue of The Schork Report , we are skeptical. Nuclear output may have dropped but remains 8.04% above last year and 3.41% above the 2004-08 average. In fact, we are at the third highest level seen in the past decade. Traders may counter this by pointing to the falling capacity utilization rate, which currently stands at 80.7%, but on average falls to 78.98% by the end of October.

However, as the graph in today’s report illustrates, production regressed upon capacity utilization is performing some 1.63% above historical norms i.e. we are doing more with less. This is likely a function of increased efficiency and renewed investment in the sector after the 2005 “nuclear renaissance”.

The bottom line is that we expect to see heavy injections continue in the short-and mid-term.
 
Bone/Papa Roach:

Given all the NG we're extracing from shale, why are we importing it? Seems kind of counterproductive or is there something counterintuitive that I'm not understanding?

First LNG tanker arrives at Golden Pass terminal
SABINE PASS - It's a picture one company has waited years to see.

A tanker carrying the first shipment of liquefied natural gas cargo arrived Thursday morning aboard the Al Khuwair Q Flex ship at the Golden Pass LNG regasification terminal located south of Port Arthur and northwest of Sabine Pass, adjacent to the Sabine-Neches Waterway.

The LNG tanker Al Khuwair arrived at the terminal from Qatar, according to Clark Vega, a company spokesman. The ship can carry 211,885 cubic meters of LNG, according to Bloomberg vessel-tracking data. The amount would equal about 4.56 billion cubic feet when converted to a gas, The cargo represents about 7.4 percent of daily U.S. gas production.

The terminal, near Sabine Pass, Texas, is a joint venture between Qatar Petroleum International, Exxon Mobil Corp., and ConocoPhillips.

A number of visitors and invited guests, including company executives, watched the arrival.

The terminal took several years to build.

The cargo arrived on one of the largest LNG tankers in the world.

The gas is cooled to more than 250 degrees below zero and then heated and piped into storage tanks at the terminal.

The Golden Pass LNG terminal includes two berths for unloading double-hulled LNG ships; five LNG storage tanks with capacity of 155,000 cubic meters each; vaporization equipment to warm the LNG to its natural gas state. The affiliated Golden Pass Pipeline facilities and equipment will transport the natural gas from the terminal to customers.

This represents enough natural gas to meet the average daily needs of about 10 million U.S. households.
 
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