Natural Gas

The modern world depends on economic growth to function properly. And throughout the living memory of every human on earth today, technology has continually developed to extract more and more raw material from the environment to power that growth. This has produced a faithful belief among the public that has helped to blur the lines between human innovation and limited natural resources. Technology does not create resources, though it does embody our ability to access resources. When the two are operating smoothly in tandem, society mistakes one for the other. This has created a new and very modern problem -- a misplaced trust in technology to consistently fulfill our economic needs. What happens once key resources become so dilute that technology, by itself, can no longer meet our growth needs?  We may be about to find out.

• Jon Huntsman Will Leave Republican Presidential Race, Endorse Mitt Romney, Officials Say (WaPo)
• Dont laugh - Plosser: Fed Tightening Possible Before Mid-2013 (WSJ)
• Greece’s Creditors Seek End To Deadlock (FT)
• France Can Overcome Crisis With Reforms – Sarkozy (Reuters)
• Nowotny Says S&P Favors Fed’s Bond Buying Over ECB’s ‘Restrictive’ Policy (Bloomberg)
• Bomb material found in Thailand after terror warnings (Reuters)
• Ma Victory Seen Boosting Taiwan Markets as Baer Considers Upgrading Stocks (Bloomberg)
• Japan Key Orders Jump; Policymakers Fret over Euro (Reuters)
• Renminbi Deal Aims to Boost City Trade (FT)

• Hedge Funds Try to Profit From Greece as Banks Face Losses (Bloomberg)
• Spain Doubles Target in Debt Auction, Yields Down (Reuters)
• Italy 1-Year Debt Costs More Than Halve at Auction (Reuters)
• Obama to Propose Tax Breaks to Get Jobs (WSJ)
• GOP Seeks to Pass Keystone Pipeline Without Obama (Reuters)
• Debt Downgrades to Rise ‘Substantially’ in 2012, Moody’s Says (Bloomberg)
• Petroplus wins last-minute reprieve (FT)
• Geithner gets China snub on Iranian oil as Japan plans cut (Bloomberg)
• Fed officials split over easing as they prepare interest rate forecasts (Bloomberg)
• Draft eurozone treaty pleases UK (FT)
• Premier Wen looks at the big picture (China Daily)
• US Foreclosure Filings Hit 4-Year Low in 2011 (Reuters)

Quick, what country is the economic engine that will power world growth? If you answered "China," you're far from alone. But there's another country that deserves as much attention and better yet, is much friendlier to investment: India, home to 1.2 billion people. To electrify all those houses, power the industries that keep all those people employed, and fuel the vehicles that more and more Indians own, India's energy needs are shooting skyward. First question to consider: what kind of energy does India need? Just about every kind, really. India encompasses significant reserves of coal, oil, and gas, but each year it has to import more and more to meet its rapidly rising demand. Domestic production increases have been hampered by land disputes, interminably slow permitting, and government-regulated pricing mechanisms that discourage development. That's got to change if India wants to keep up, and its government knows it. Domestic supplies always come with better reliability, better prices, and other benefits that we can shorten into two words: energy security. So India is reaching out to foreign oil majors, quietly setting up deals to exchange stakes in giant, underexplored oil and gas fields for the technical expertise it needs to best develop these resources. These partnerships are working into place slowly. However, they show Delhi is serious about the welcome mat it rolled out in 2000, when it passed a policy that allows foreign companies to own 100% of any oil and gas assets they may want to acquire for exploration and development. And what we really like is that explorers are welcome in a democratic and reasonably friendly country that harbors none of the risk of asset nationalization that clings to other underexplored locales, like Venezuela.

Heading into the North American open, European equity futures are trading lower, with comments from Fitch’s Riley, who suggested that the ECB must do more to prevent cataclysmic EURO collapse, causing the most recent bout of risk averse sentiment. As a result, major FX pairs are trading lower, with EUR/USD testing 1.2700, while GBP/USD fell through 1.5400 level. Looking elsewhere, apart from being buoyed by Fitch comments, German Bunds benefited from a well received German Bobl auction. Of note, European bond yield spreads are predominantly tighter for the time being, with analysts noting buying of Spanish and Italian paper by domestic and real money account names.  Finally, there is little in terms of macro-economic data and instead the attention will be on the publication of various EU related economic outlooks and the US Treasury is set to sell USD 21bln in 10-y notes.

Markets are quiet halfway through the European session as most are awaiting the outcome of the meeting between German Chancellor Merkel and French President Sarkozy in Berlin at 1230GMT. The meeting is likely to centre around Greece, as well as the PSI update that, according to the FT may see the holders of Greek bonds accept higher losses as the contentious negotiation over writing down Greece’s debt burden are due to be concluded soon. German Industrial Production figures for November came in roughly in line with expectations, with the German Economic Minister commenting that this measure is likely to remain subdued over the winter months. Data released from Switzerland today shows Retail sales performing much stronger than expected, showing strong consumer demand in Switzerland across November.

All you need to know.

We have now entered the fifth year of this Fourth Turning Crisis. George Washington and his troops were barely holding on at Valley Forge during the fifth year of the American Revolution Fourth Turning. By year five of the Civil War Fourth Turning 700,000 Americans were dead, the South left in ruins, a President assassinated and a military victory attained that felt like defeat. By the fifth year of the Great Depression/World War II Fourth Turning, FDR’s New Deal was in place and Adolf Hitler had been democratically elected and was formulating big plans for his Third Reich. The insight from prior Fourth Turnings that applies to 2012 is that things will not improve. They call it a Crisis because the risk of calamity is constant. There is zero percent chance that 2012 will result in a recovery and return to normalcy. Not one of the issues that caused our economic collapse has been solved. The “solutions” implemented since 2008 have exacerbated the problems of debt, civic decay and global disorder. The choices we make as a nation in 2012 will determine the future course of this Fourth Turning. If we fail in our duty, this Fourth Turning could go catastrophically wrong. I pray we choose wisely. Have a great 2012.

The Shale Bonanza has the setup for implosion

If we had to summarize the Status Quo's confidence that no black swans will threaten its control in 2012, we might begin with its faith that the system's self-regulation will resolve all systemic challenges. Just as the Status Quo has placed all its chips on a single bet--that "growth" from debt-based consumption can be resumed with vast public borrowing and saving the predatory financial sector--it also bases its confidence on the system's self-regulation. If the banking sector is riddled with fraud and embezzlement, then some minor tweaking of regulation will solve all issues. If demand for debt has collapsed, then the solution is for the Federal Government to borrow 10% of GDP every year to compensate for the decline of private debt and spending. The faith is that extending and pretending will magically restore the "growth" the Status Quo needs to support its ballooning debt. Extending and pretending offers up the compelling illusion that the system's broken self-regulation is up to the task of fixing systemic problems. In the darkness overhead, we can hear the beating of unseen wings that promise to make a mockery of the Status Quo's supreme Imperial hubris.

Fat Finger...again?

Despite a well-supplied market, Henry Hub spiked to a 10-month high partly on the prospect of increasing LNG trade and export after the U.S. Energy Department authorized Cheniere Energy (Amex: LNG) to export LNG from its Sabine Pass terminal. But not everyone is sold on LNG exports yet.

While the commodity complex has been on a tear ever since the global recession cooled, there is one commodity that has been going nowhere: Natural Gas! Yet, we have been receiving hints that this game is about to change.

More trouble for Italy, whose CDS has surprisingly not spiked in OTC trading yet. In addition to a "technical glitch" halting its stock exchange, now Reuters reports that the country's natural gas deliveries may be compromised. "Political unrest has hit Libya, which is Italy's biggest oil
supplier and covers about 10 percent of its gas needs. Gas is
carried via underwater pipeline Greenstream, which is controlled
by oil and gas major Eni. "Supplies have not been interrupted, but the situation is
very complicated," Industry Undersecretary Stefano Saglia told a
conference on Tuesday. Gas flows from Libya into Italy through the 510 km pipeline
have been slowing since late Monday, and the situation is
worsening, Italian energy publication Staffetta Quotidiana said,
quoting sources close to the situation. Who would have thought that African revolutionary butterflies can flap their wings and cause the price of that most hated of products - nattie, to be on the verge of surging.

Natural gas has long been touted as a cleaner alternative because natural gas releases about half as much of the greenhouse gas carbon dioxide as coal does. However, a new research by Dr. Robert Howarth at Cornell University says otherwise.