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"Just Wait For The Bankruptcies" - The Latest Market That "Is In Real Trouble"
Natural-gas fell to the lowest ever inflation-adjusted price in its history of NYMEX trading on Wednesday as extremely warm weather continues to limit demand. As we recently explained, the glut in nattie is worse than that facing the crude complex, and while the glut in oil is expected to continue for the next year or so before balancing in late 2016, the pain for liquefied natural gas (LNG) could be just beginning. As one trader warned "this market is in real trouble...just wait for the bankruptcies."
As The Wall Street Journal reports, gas prices have been falling precipitously in recent weeks because of the combination of record-high stockpiles and a December that could be the worst for heating demand in history.
Prices have fallen 25% in just one month and have dropped 39% from their high in August. Wednesday settlement put gas below the inflation-adjusted low of $1.801 that had been in place since January 1992.
Gas did make a move up to small gains in after-hours trading, but many traders and brokers had little explanation for that rebound. The trader Marc Kerrest said he noticed prices and spreads moving higher for months far away, a sign front-month prices could follow. He closed out some of his bearish bets before settlement, he said.
“But in no way would I consider going [bullish on] gas just because of what it’s done,” in recent weeks, said Mr. Kerrest, who manages his own gas-focused fund, Cornice Trading LLC.
Warm weather in the U.S. caused by the El Niño weather phenomenon has sharply limited demand for the heating fuel this year. The natural-gas market is oversupplied, and some traders and analysts say the industry could run out of storage space for gas by mid-2016.
Production was so high and demand was so soft that storage levels likely shrank by just 41 billion cubic feet last week, according to the average forecast of 17 analysts, brokers and traders surveyed by The Wall Street Journal. That is only a third of their five-year average drawdown for the week. If the forecast is correct, stockpiles on Dec. 11 would have been 16% above levels from a year ago and 8.9% above the five-year average for the same week.
With weather so warm and prices already so low, there may be no lower price to which gas can fall to draw more demand, said Scott Shelton, broker at ICAP PLC. That means prices have to fall so far that producers stop working.
But many have been caught in a cycle of debt, forced to keep producing even at a loss just to bring new revenue in the door that they can use to pay the debt bills that piled up from using loans to fuel their growth during the drilling boom. It isn’t clear how far prices would have to fall to get them to stop, Mr. Shelton said.
“This market is in real trouble,” Mr. Shelton said. “Just wait for the bankruptcies.”
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Finally, as we detailed in October, JPMorgan sees a buyer's market in NG until 2020 with limited new long term contracts being signed and renewal of existing contracts post expiry likely to have more price diversification (i.e. more Henry hub component) and offtake/diversion flexibility. A recent trip to Asia identified 10 key themes reinforcing their bearish outlook on the LNG market for the rest of the decade.
Excess capacity forecast to grow to 20% by 2018...

#1: Asia LNG demand slowdown confirmed
All participants shared a cautious view on near-term demand trends, with Japan and South Korea likely flat to down and China gas demand growth having slowed this year. In Japan, population and economic trends are the main driver of lower electricity demandgrowth, with some nuclear facilities expected to restart that will initially lead to fuel switching away from burning oilproducts, then eventually coal and LNG, if enough reactors start back up(Tepco guided 1GW nuclear plant reduces LNG demand by 1.2mtpa). KOGAS believes LNG imports will decrease in South Korea next year owing to coal and other commodities beingcheaper and could seea stagnant demand period from FY17.
#2: Lower FY15 gas demand growth in China – potentially a one-off
Many participants in the Chinese natural gas market saw the collapse in gas demand growth this year as "an anomaly", partly relatedto market uncertainty on pricing and frequency of change. Many industry contacts see mid to high single digit gas demand growth in the long term especially if the government is serious about environmental measures and penetration of gas into China's energy mix –China has already been shutting coal power plants which were only commissioned in 2008. PetroChina sees gas demand growth at 2.6% this year at 184bcm in 2015, rising to 300bcm in 2020 (implying 10% pa). (Note: 1H15 PetroChina still makes a loss on pipeline gas of Rmb0.38/cm3 or c$2/mbtu vs a loss for LNG of Rmb1.8/cm3 or c$10/mbtu).
#3: LNG still at a cost disadvantage vs alternative fuels
Long-term demand from fuel switching remains a potentialoption, but cost competitiveness is still key for now. When it comes to the potential for fuel switching to natural gas, we came away feeling that this is likely to be a positive long term driver, although it may not happen as quickly more likely the next1-3 years. In Japan, one smaller customer is actually still investing ina new coal power plant. However, the companyacknowledged that this would likely be the last coal facility that itwould consider, as future regulatory changes could add to the cost. For now, coal remains highly competitive.
#4: Lack of customer desire for new contracts
On the supply side, there is a wall of new capacity of 75mptaFY14-17on its way, mostly from Australia and the US–which is over 3x the equivalent capacitygrowth FY11-14. Customers in Japan andKorea were still committed to signing agreements, noting the importance of long-term supply security with reliable suppliers. KOGAS does not plan to take on any new long-term contracts until 2020 and will re-negotiate some of its Qatar/Oman contracts which expire in early 2020s. JERA, a 50/50 Tepco/Chubu established to be a more globally competitive powergen and gas business, stated it would only sign LNG agreements from 2020+ as existing contracts expire (eg Qatar). However, there was a desirefrom Asia buyersto exercise destination flexibility clauses where possibleand should supply/demand balances change in the coming years.
#5: Large projects still expected to FID
Despite the near-term supply/demand and pricing situation, some suppliers appear to have not thrown in the towel on sanctioning new projects for the 2020+. JGC expects orders for large LNG projects e.g. Mozambique (floating/onshore);Tanzania with selection of contractors this year; Tangguh expansion with FEED being conducted with selection of EPC by year end as well as Lake Charles and is “strongly hoping” Shell/BG will go ahead with LNG Canada. Chiyoda is also not only doing FEED, but also EPC and hashigh confidence in the project as well. KOGAS isfinding it difficult to findbuyers for Mozambique, but re-iterated FID by year end or early 2016for the project. If these projects (eg West Coast Canada LNG) are sanctioned and approved by local governments (also still uncertain), this may delay the longer cycle recovery potential.
#6: Europe – the market of last resort
With near-term excess LNG supply, the question remains where spot cargoes will land. We believe that the US and Qatar could increasingly look to the European market as anoutlet valve, given geographic proximityand gas storage availability. While European gas prices have already been weak (UK National Balancing Point (NBP) index down 22% y/y), the economics of sending Henry Hublinked gas to Europe (Henry Hub * 115% + transport) remainsattractive and suggeststhat future upside to European spot prices could be capped and, at worst, more downside may be ahead with the risks that Gazprom responds to maintain market share.
#7: Increasing LNG pricing diversification
Asia LNG buyers clearly want to obtain more pricing flexibility within their LNG portfolios and most buyers suggested a gradual move away from JCC (Japanese Crude Cocktail) pricing. JERAexpects to increase the portion of non-JCC linked contracts. By 2020, JERAexpects10mtpa procured based on Henry hub for long term contracts (vs 25mtpa procured today with a third spot/short term). JERA also will select producers based on 1. Offtake volume, 2. Destination flexibility; 3. Supply availability, not only price. KOGAS also said its pricing strategy will take a flexible approach on existing contract expiry(eg 50% JCC/50% Henry hubmix). JAPEX has also noticed a change in customer pricing toward a mixed/hybrid structure.
#8: Eco-ships taking time
NYK seeslimited recovery in spot dayrates for LNG vessels in the next 1-2years, but as liquidity increases and more projects eventually get sanctioned there should be more opportunitiesin LNG shipping (the company expects to expand its 69 LNG fleet to 100+ by 2019). Most of the company’s current vessels are steam turbine. Under current technology, NYK suggested it is not easy to replace vessels to natural gas as infrastructure is notalways available tofill up at ports hence NYK will soon have its own LNG bunkering vessel in Europe. The company believes that while the eco-ship theme remains structural with more environmental measures being put in place for shippingfuel, the pace of natural gas substitution has been slowed a little with lower oil prices.
#9:Australian LNG projects around mid- to single-digit IRRs at current oil price
Despite most Australian LNG projects being at the upper end of the cost curve, many companies were guiding mid-to single-digit returns for these projects at current oil prices, which was a surpriseto us. KOGAS stated that if the oil price remains at $50/bl (using a 6% discount rate) the companyis not likely to take impairment on its Australian LNG projects (GLNG, Prelude). KOGAS see its Australia GLNG returns at c6% and Prelude at 7-8% at current oil prices (both previously around 9% in a higher oil outlook). INPEX guided only anIRR decrease by 1% from previous 1010% IRR at $70-100/bl for Ichthys. The company also stated anIRR at $60/bl would be below 9%, although project breakeven point is around $30-40/bl.
#10: Wait and see approach for FLNG and LNG FSRU
There was a cautious view on the outlook for FLNG and LNG FSRU with the market waiting to see if Petronas demonstrates FLNG works then more projects will start to be sanctioned and more small-cap players may join the market i.e. small LNG solutions vs mega projects. Shipbuilders such as DSME remain in “tough” negotiations with producerse.g. Eni for Mozambique. DSME know the costs for FLNG from Petronas FLNG (and know thelessons learnt, e.g higher than expected working volume, i.e man hours). However, DSME expects60 months from contract signing to delivery for FLNG (Eni or Anadarko Mozambique) and itsyard could cope with signing two contracts for two FLNG vessels. Keppel, which is half way through a conversion for Golar,is still talking to other producers about new contracts and believes vessel conversion is still economic at current oil prices. However, some E&C companies believe NOC’s do not like FLNG and prefer onshore LNG as there is no ownership if FLNG.
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And to nail the coffin shut one more time, they add, Coal is still consistently cheaper than natural gas or oil products...
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Sadly, up here on the mountain LPG prices have not come down as much as we would like.
Thankfully we only use LPG for the whole house backup generator and that is rarely used....so far. I did stub in a second line from the tank to the house in case we wanted to switch to a LPG gas stove/heat.
Wait till Feb when the contracts roll. Propane is not natty, but condensates are at 5 year lows in the front end.
In western Canada this past summer, wholesale propane prices were occasionally negative. Yup, they were paying for propane to be hauled away.
Isn't LPG really a waste product of the refining process? Make sure you run the generator once a month to keep it healthy. I prefer the LPG in a lot of small remote systems and also to run stoves/ovens, gas clothes dryers and radiant (floor) heat. It's the only way to go. You have a nice setup there based on everything you and the Mrs. have written. Job well done.
Global warming: a self-correcting problem. Don't need heat, don't burn carbon fuels. No problem. But now we know why the elites are so upset. They want global cooling to sell carbon, so everyone gets rich. Boy, was that simple.
Merry Christmas . Texans are gonna feel the pain soon. Property Taxes are going to sky rocket for sure. Just a matter of time
More likely we'll see a hike in the state sales tax and some progressive buttwad will recommend an income tax.
The school districts in this county just packed the board for the central appraisal district. The local school district has been selling bonds in order to tear down structurally sound school buildings and replace them with new buildings with parts made in China. They are also at risk of losing their single largest taxpayer. I was out front opposing those bonds so now there will be a target on my back.
Something to look forward to. /s
El-Nino is here, it is real, and it's has pumped a wedge of warm air over the Eastern Half of the USA and Canada that is ecpic in size and strength! Many people, tens of millions worth, who would have furnaces blasting on overdrive, have not even swithed them on yet!
El-Nino will last for some time. Demand will stay down for now!
The fracking of gas and oil. The US desire to use Liquified Natural Gas to make America a mass exporter to European markets will stall. In fact, Poland has built a very large facility to land US Liquified Gas and put it into the market. The Same for the Baltics. A huge investment in Liquified Natural Gas terminals is ripping taxpayes a new asshole, while Russian gas flows in at half the price the USA can deliver gas to the terminals.
Polish taxpers lost 1 billion dollars already, as the losses have just begun. The whole idea was Geo-Political NOT economic! The USA was going to cut away all of Eastern Europe from economic ties to Russia. Even though Russia is the cheapest enery supplier they have, the biggest single export market the EU has, and the biggerst supplier of Coal and Metals. When politics replaces capitalism, somebody gets fucked, usually taxpayers and consumers. The Poles off all fools have snatched at the US bait, and are now paying.
What's your opionion on the other trends in NG?
Other than this short term weather related drop in demand, Isn't the huge glut really caused by the frackers, since they get natural gas out of the wells with the oil? So a crushing in the crude complex which we are seeing play out should be bullish for Natural Gas after the fracking shake-down ocurs? I am also thinking that in Canada and in US they are putting a lot of pressure on coal and will force larger percentages of utilities to use Natural Gas.
The Haynesville shale in East Texas and Louisiana is mostly a gas play. The horizontal Haynesville wells are said not to be holding up as well as those in the Cotton Valey formation.
Those LNG facilities in Poland will shut down - I think either Estonia or Lithuania has similar issue - the gas from Russia is too cheap and transport nominal - the economic activity in Poland due to US sanction demands is killing farmers et al - which not to last politically
Real wild card in LNG is Japan - major demand but the short distance from Vladavostock means minimal ships required for a shuttle - same for Korea. I dont see how Australia / Canada / USA compete with eastern terminals in Russia - same for Methanol and Ammonia / Urea - feedstocks NG
They will be able to buy endless amounts of equipment at Bankruptcy Auctions making their numbers even better
but polish logic still have russia to blame...
And the peeps in the Pac NW have webbed feet, as they are building their Flood Arks. Or so it seems.
No Drought in Cascadia, that's for sure.
How low can it go. For answer just found this….
“”How do you price production to come off?” asked Energy GPS President Jeff Richter. “The answer is the Marcellus is trading $1.00, and assuming it costs 45 cents to go from the Marcellus to the Gulf, then $1.45 is where it has to go. You can’t break the price slide until you meet that marginal break-even point to signal production to turn off. As long as there are no restrictions to getting gas out of the Marcellus, that’s what you have to go to.”
Those bankrupt are dreams come true for agents of The Great Red Dragon, or maybe we might call them "Satan's Angels." Why? Because of margin-calls, those debt-holders, and share-holders will be giving up TITLE to the banksters. The old plan was "to own the earth in fee-simple." They bought it with the "free money" they created. With interest rising, they'll get it faster.
Bankruptcies will be like dominoes.
They will be cascading,
Nothing is ever to be allowed to publicly, visibly go undeniably BANKRUPT.
It's called “extend-and-pretend" and PAPER ASSET PRICES MUST ALWAYS GO UP...
Here are some signs of a coming recession.
1. Investors in high-yield bonds are expecting to see their first negative return since the start of the credit crisis in 2008.
http://www.marketwatch.com/story/deteriorating-junk-bonds-flash-warning-signs-for-stocks-2015-12-07?dist=afterbell
2. Factory orders continue to drop
http://www.zerohedge.com/news/2015-10-02/us-factory-orders-flash-recession-warning-drop-yoy-10th-month-row
3. Default risk spikes
http://www.zerohedge.com/news/2015-10-02/us-financials-default-risk-spikes-2-year-high
4. M&A set record
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/
5. Iron ore prices tumble
http://www.marketwatch.com/story/iron-ore-prices-keep-crashing-adding-to-global-growth-fears-2015-11-30
6. Baltic dry shipping index tumbles
http://www.marketwatch.com/story/shipping-index-falls-to-all-time-low-stoking-fears-about-global-growth-2015-11-19
Here is how to prepare.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Here is how to get your mind off this stuff.
http://michaelekelley.com/category/humor/
Good luck!
I'm doing my part, heating with WOOD. Any wood, from anywhere. I spent three weeks cutting, chopping, sawing, storing and now I'm good until March. If I need more, I have 5 1/2 acres, of which 3 1/2 is woods, with lots of downed trees and limbs. The key for me will be to find the ones that have only been down a year or two. Those still have some heat value.
On the other hand, I wish I was heating with nat gas. It's going to be a cheap winter for those folks. About time, as I see it.
three week? use pocketknife? or three weekends?
Russians cut and build house shell three weeks two guys
You guys have a climate incentive that Americans mostly lack. Plus probably smaller houses as well.
As for me, the winter has been so mild and petroleum products so cheap that I've been running the propane instead of cutting up all the lumber dumped in the back 40. At $1.09 a gallon and probably heading south from there even as we speak, it's cheaper than running my gas-powered pocket knife.
Hope you are warm and well.
Why can't I get natural gas in a tank like I get propane in a tank.
Friggin NG is cheaper than Propane and oil. I'd love to replace the propane wall unit and the oil furnace with a NG equivalent. Why the fuck can't NE get natural gas. fucking ridiculous
The technical reason factors heavily into economics.. the boiling point of propane at atomspheric temperature is -44F, and the boiling point of methane (primary component of natural gas) is -259F. At higher pressures, these temperatures rise. At 500psi, propane boils at 268F and methane at -133F. In other words, natural gas needs incredibly cold temperatures to be liquid. Also forgot to mention, you need a liquid because it much more dense, so it contains more heating content as it converts to a gas and is burned.
Might be the only wise move I made in the last 7 years. Switching from a big oil tank in basement to natural gas line directly to house. All for $50. I have no idea how much I saved so far but it has to be $$$$$1000s.
Good for you, Seasmoke.
Madcows up above in NE is being screwed big time by all the opposition to building pipelines from the Marcellus.
Let there be NO doubt ... the amount of gas from the Marcellus and Utica (there are even MORE hydrocarbon bearing formations beneath the Utica) will heat/power the country for many, many decades.
ok, so bad news is good, right, or is good news bad now? fuck it, im stickin with PMs, least i know all news is bad.
Inflation-Adjusted 'eh!
Here is the Dow:
http://showrealhist.com
it's all fun and games until somebody trips and "accidently" butthurtz a party guest
But it's acceptable if the "trippee" butthurter is rich Saudi.
http://www.bizjournals.com/houston/news/2015/12/14/cameron-to-close-hous...
" Yes we can! "
but what? europ is promised this against evil Russian gases
It is the inevitable result of disruptive technological advances. Fracking put a vast new supply into what was previously a stable market. Now, instead of a world where the power rested with the suppliers, it increasingly rests with the consumers.
For the consumers, this is a very nice thing.
For the producers, not so nice.
http://www.businesswire.com/news/home/20151216006472/en/SHAREHOLDER-ALER...
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LOL!.....And all those who claim global warming is so terrible.....Seems good to me....
But, the oil and gas producers are so desperate for a war to bump up prices, that their lackey politicians are calling for shooting Russian warplanes down, and they have John Mccain acting like chicken little, demanding 100000 troops on the ground.....
If there's anything we should have learned by now on ZH, it's that things like Price Manipulation of select Assets (esp. Base and Precious Commodities), using fiat Debt and out-of-thin-air QE (money/credit creation), is the New Normal for TPTB.
What also shakes out of all this, is that Industry Consolidation is LOGICAL, PLANNED and INEVITABLE. Anyone who does not see this, is a simpleton or a shill. I called it for both the PM (Gold, Silver) and the Fracking industry, for over a year now.
Let me put it in terms that even a Simpleton can grok: If YOU had this Fed-backed check/cheque book, and could write thousands of checks that people had to accept, what else would you be doing (after indulging in a shopping spree of 'expensive toys'), but depress prices of assets you wanted, and then buy up these assets? Duh!
The unprecedented wealth transfer into ever fewer hands will continue, until there is either civil war or a NWO: Feudalism 2.0 -- The Global Game for all the world's Oligarchs, their families and BFFs.