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Posted

DOHA/SINGAPORE, Jan 15 (Reuters) - QatarEnergy, the world's second largest exporter of liquefied natural gas, has stopped sending tankers via the Red Sea although production continues, a senior source with direct knowledge of the matter told Reuters on Monday.

https://www.reuters.com/world/middle-east/lng-tankers-held-up-over-weekend-following-us-uk-strikes-houthis-data-2024-01-15/

 

Old news ... however that round trip that used to take 40 days including on/off loading, now takes roughly 58 days inclusive. Hence, to move that same amount of LNG in the same 40 days now requires 45% more LNG tanker capacity (58/40 -1)... and it isn't available. Squeeze.

 

The Houthis have been getting pounded for weeks now, yet the drones keep coming; Hamas has been pounded for months ... yet the rockets still fly. Have to think the interventions are not going according to 'plan', and that the US export decision is a precaution against a tanker sinking.

 

Obviously, we hope for the best; but if Uncle Sam is taking precautions .... it would be foolish to ignore the message. 

 

SD

 

 

 

 

Posted
18 hours ago, SharperDingaan said:

Old news ... however that round trip that used to take 40 days including on/off loading, now takes roughly 58 days inclusive. Hence, to move that same amount of LNG in the same 40 days now requires 45% more LNG tanker capacity (58/40 -1)... and it isn't available. Squeeze.

I think there is a squeeze in the shipping pricing but not in the cost of energy. US has enough natty. Canada has enough natty. Europe is oversupplied for this time in the winter. I think the prices will continue to stay where they are short to mid term. 

Posted

When even the Washington Post calls it out...

 

On Friday, however, that same Biden administration ordered a de facto halt to the approval of new facilities for exporting the resource to countries with which the United States does not have free trade agreements — a category that includes all of Europe. It’s an election-year sop to climate activists that will do much more to unsettle vital U.S. alliances than to save the planet. ...

 

The main short-run damage the administration’s obviously political decision does is to the United States’ reputation for rational, fact-based policymaking, and for wise consideration of climate control in the context of geopolitics. You cannot change demand for energy by destroying supply: If the United States did indeed curtail LNG exports, it would just drive customers into the arms of competitors such as Australia, Qatar, Algeria and, yes, Russia. Quite possibly, some potential customers would choose to meet their needs with coal instead.

 

https://archive.ph/Nk71D#selection-1389.0-1393.528

Posted

What’s a good way to estimate future natural gas prices? 
 

I’ve found a potential investment that would lose half its value if natural gas prices goes lower (even to zero), might lose 25% if they stay at current levels, and is a 5x-10x if they go up significantly. It’s an intriguing range of outcomes but what the heck do I know about natural gas prices?

Posted
3 hours ago, ValueArb said:

What’s a good way to estimate future natural gas prices? 
 

I’ve found a potential investment that would lose half its value if natural gas prices goes lower (even to zero), might lose 25% if they stay at current levels, and is a 5x-10x if they go up significantly. It’s an intriguing range of outcomes but what the heck do I know about natural gas prices?

 

I think in a situation like that predicting thr future is less important than controlling the spread of your own outcomes. 

 

You can size it like an option and sleep well knowing it's probably a good risk-reward but is a bit binary. 

 

If you want to size it larger you need a good hedge. So something that will benefit from gas prices staying the same or dropping, and ideally you want that to have a bunch of leverage.

 

Something like a fertilizer company, or maybe puts on a nat gas producer or nuclear power generator (both of which benefit from high gas prices).

Posted
15 hours ago, ValueArb said:

What’s a good way to estimate future natural gas prices? 
 

I’ve found a potential investment that would lose half its value if natural gas prices goes lower (even to zero), might lose 25% if they stay at current levels, and is a 5x-10x if they go up significantly. It’s an intriguing range of outcomes but what the heck do I know about natural gas prices?

 

I think it's hard to come up with a certain price, but directionally it's hard to think of scenarios where there aren't pressures to make it go up.  Nat gas is cheaper here than in Europe because we don't have the capability to export a lot of LNG. If that changes, prices will converge, currently that's bullish. 

 

Clean energy like solar and wind requires some kind of backup base load generation.  Other than nuclear, the stuff that is ready on demand is coal, oil, or natural gas.  So if the ESG trend continues, that's also bullish for natural gas. 

 

Natural gas is needed to make ammonia, which is used for fertilizer.  There is no substitute, so secularly, it will increase demand for natural gas in lock step with global population growth. 

 

IMO 2030 is working on what will be the new clean fuel standard for shipping.  One of the candidates in ammonia, which should be bullish also. 

 

The two problems are that these trends are well known and slow moving, so they will have an effect some day, but who knows when that is. 

 

In the short term, natural gas and oil correlate closely with industrial production, and since we don't export a lot of LNG, the US price is linked to industrial production in the US.  That's difficult enough to predict in the short term, but going into an election with the current political climate, I wouldn't want to take either side of that bet.  

 

The other thing that will affect natural gas prices is the weather, because it's used for home heating. But again, even though the trend points to warming temperatures, it's not something that you can predict in any one year. 

Posted
On 2/8/2024 at 11:07 AM, Saluki said:

 

I think it's hard to come up with a certain price, but directionally it's hard to think of scenarios where there aren't pressures to make it go up.  Nat gas is cheaper here than in Europe because we don't have the capability to export a lot of LNG. If that changes, prices will converge, currently that's bullish. 

 

Clean energy like solar and wind requires some kind of backup base load generation.  Other than nuclear, the stuff that is ready on demand is coal, oil, or natural gas.  So if the ESG trend continues, that's also bullish for natural gas. 

 

Natural gas is needed to make ammonia, which is used for fertilizer.  There is no substitute, so secularly, it will increase demand for natural gas in lock step with global population growth. 

 

IMO 2030 is working on what will be the new clean fuel standard for shipping.  One of the candidates in ammonia, which should be bullish also. 

 

The two problems are that these trends are well known and slow moving, so they will have an effect some day, but who knows when that is. 

 

In the short term, natural gas and oil correlate closely with industrial production, and since we don't export a lot of LNG, the US price is linked to industrial production in the US.  That's difficult enough to predict in the short term, but going into an election with the current political climate, I wouldn't want to take either side of that bet.  

 

The other thing that will affect natural gas prices is the weather, because it's used for home heating. But again, even though the trend points to warming temperatures, it's not something that you can predict in any one year. 

 

Your post is all about demand. What about supply? US natural gas production has more than doubled in the last 20 years thanks mostly to shale. I think you'll need to have a strong view on future production in order to predict prices.

 

https://www.eia.gov/dnav/ng/hist/n9050us2a.htm

Posted (edited)

Anyone likes $GTLS (Chart Industries). I have never followed the name, but had some time to kill and managed to listening on a Sumzero pitch on Zoom last week and found the setup compelling enough to buy a small starter position right away.

 

The stock got wrecked due to the high debt load from the pending Howden acquisition, but the presenter made a good case that the acquisition is transformative for GTLS and makes the business more predicable. GTLS share price has been super volatile in the past.

 

What I Iike about them is that they are in various of the gas handing value chain (pumps, heat exchangers, LNG handling), are  kind of s Swiss Army knife offering if we get more into hydrogen, LNG projects  etc. I was looking for plays into this that are not overpriced and had my eyes set on APD, but did not like recent comment s from management there. GTLS is way riskier, but if they execute well and things go their way, the earnings potential should be much larger too. Of course, so is the downside.

Edited by Spekulatius
Posted (edited)
15 hours ago, treasurehunt said:

 

Your post is all about demand. What about supply? US natural gas production has more than doubled in the last 20 years thanks mostly to shale. I think you'll need to have a strong view on future production in order to predict prices.

 

https://www.eia.gov/dnav/ng/hist/n9050us2a.htm

 

Slides 29-35 of EPD's investor presentation may be useful here:  https://ir.enterpriseproducts.com/static-files/7dfd6fce-afdb-4869-af76-5f745faa7ba2

 

I have no idea how accurate those forecasts will turn out to be, but you can see from their CapEx that they are putting their money where their mouths are.

Edited by KJP
Posted
10 hours ago, KJP said:

 

Slides 29-35 of EPD's investor presentation may be useful here:  https://ir.enterpriseproducts.com/static-files/7dfd6fce-afdb-4869-af76-5f745faa7ba2

 

I have no idea how accurate those forecasts will turn out to be, but you can see from their CapEx that they are putting their money where their mouths are.

Thanks. I found this presentation very interesting. At least EPD is financially motivated to do a good job of modeling supply and demand.

Posted
Quote

What’s a good way to estimate future natural gas prices? 

IMO the difficulty in forecasting natural gas prices is the reason that this is known as a widow maker trade.  Natural gas is a pure commodity sensitive to warm winters and lacks a cartel like OPEC to limit overproduction. 

Posted
3 hours ago, sholland said:

IMO the difficulty in forecasting natural gas prices is the reason that this is known as a widow maker trade.  Natural gas is a pure commodity sensitive to warm winters and lacks a cartel like OPEC to limit overproduction. 

This. Demand for NatGas is notoriously hard to model. It's subject to weather and, for the longest time, it was centered around local markets. This is why LNG imports were hyper-profitable. Now that LNG transportation infra is becoming more robust, prices across the world will harmonize better, i.e., there won't be a $20 difference between NA and Asian NatGas but there will still be a difference to account for shipping cost/time. Supply is a bit easier to model as you can assume companies will pump out as long as their profit is above or at $0. 

Posted

Merger agreements are always an interesting read, since they explain the background of the merger - in this case between APA and CPE. Looks like there were a total of 7 different suitors for CPE /Company A - G in discussions from late 2021 until 2024.

 

Seems like everyone is talking to everyone else about combining Permian assets.

https://www.sec.gov/Archives/edgar/data/1841666/000119312524021134/d664038ds4.htm#toc664038_49

Posted
17 hours ago, Spekulatius said:

Merger agreements are always an interesting read, since they explain the background of the merger - in this case between APA and CPE. Looks like there were a total of 7 different suitors for CPE /Company A - G in discussions from late 2021 until 2024.

 

Seems like everyone is talking to everyone else about combining Permian assets.

https://www.sec.gov/Archives/edgar/data/1841666/000119312524021134/d664038ds4.htm#toc664038_49

It's not just in the Permian.

SD

 

Posted

The reality is that US shale are GAS fields, producing oil as byproduct; gas prices are local, with a floor price a little above the cost of distributing it. Higher prices the further away from tidewater you are, and most of it going to standby gas fired turbines when weather is cold.

 

Gas is cheap but nukes are cheaper. Nukes will also increasingly supply both the growing hydro-electric shortfall (no rain), and base-load power requirement of growing numbers of EV. Gas will top up supply when its cold (for heating), when the wind ain't blowing, and when it's hot (PV less efficient).

 

Not a lot of reason to love gas.

 

SD    

Posted (edited)

Nuclear power is much more expensive than NG power plants right now. I can’t imaging anything beating power generation at <$3 MCFE right now, not even coal.

 

I agree Ng is oversupplied in the US - all the more reason to export NGL right now not ban/ stall export licenses.

Edited by Spekulatius

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