I have been reading quite a bit of false misconceptions lately on rapid declines and huge price spikes being forecasted by bloggers that seem to really not know what is going on. So I wrote a piece yesterday about a key driver. For anyone here that has an interest- http://seekingalpha.com/instablog/6...ng-natural-gas-pricing-and-continued-drilling
appreciate the insight... What are your thoughts about the caverns being bought and used for storage by firms such as Centaurus/John Arnold? I believe it's been reported that John Arnold has spent more than $100 million on caverns for storing gas. thanks, Walter
In the short term, anyone that has spent money on storage over the last couple of years, is truly being punsihed by how flat the forward curve has become, I am not suggesting there isn't a profitable spread in the curve, but I question what some margins will look like based on what was paid. I for one would not be in love with storage capacity given the current curve, unless my cost basis for said capicity was quite low. I doubt there are too many with a low cost basis here, considering where the curve was just several months ago. Long term, the players that own storage will make money, but the cost recovery of these projects are likely to be pushed much further out unless shape comes back into the curve.
Papa, do you know of any references or white papers on storage economics? I am interested in more than just buy cheap gas in the summer and sell it in the winter. I know there are many variables depending on where the gas must be transported, etc. but am interested in more detail on the economics. TIA.
I know of none. There really isn't that much educational material for physical gas trading, companies mold their own strategy and train traders in their way. The parameters fro pricing storage space are almost limitless, enormous amount of variables from pipes, to cavern space and deliverability, compression, etc etc etc etc etc.
Gas companies have been figuring in a pretty poor basis when buying Gas from royalty owners so I doubt they have been hurt much.
Lucid, concise, and chock full of fundamental goodness. Nice profile photo, but lacks the racy sexuality in the Corona beach ad spots. Interesting side note: Monday afternoon, I had a consulting meeting with a long equities value fund out of upstate New York - a real conservative 'old school' group with insurance company and state pension board kinds of clientele. Point being, they like to invest in utility and natural gas companies, and your article is basically lock-step with their viewpoint on the fundamental landscape. You can see your opinion reflected in the PJM financial swaps market, in the weather market forward curves, and you can see it in the natty forward curve. I have a friend who is a risk manager at a very large fertilizer company - and they aren't in a hurry to hedge their forward net short production requirements. Spot-on.
Thanks Bone. You know what is mind-numbing is how tight VX is here, feels like that spread has a very large long component that is heavily trying to defend it from moving back out, possibly in hopes of a TC outage in the gulf in U, quite a risky wager at this point as the just out 12z GFS has exactly ZERO threats for the next 2 weeks for the GOM. What perplexes me is that these guys long this have successfully squeezed about all the blood out of this they can and refuse to liquidate. That switched last year at -1.10, not that I expect a repeat, however, -.20???? We are about to have roughly 4bcf/d additional supply YoY, and cash will finally be discounted. I truly don't understand why the defense and non-liquidation reigns.