We’ve got a new favorite reality TV show: waiting for the weekly natural gas storage report to be released at 10:30 on Thursday morning, then heading over to the live NYMEX feed to watch the market’s reaction. Since we check a 15-minute update, we have to wait until 10:45, but the results for the past few months have been consistently entertaining.
Last week, a report that was a whopping 3% below expectation, coupled with a small downward revision of overall reserve levels, resulted in price liftoff at 10:45. This rally held up through Tuesday, then tumbled, which muted the response to today’s higher than expected injection. But down the price goes, nonetheless. It should settle back to around where it was before last week’s rally by end of day.
It’s interesting watching how a country which is increasingly looking at the world through a timeframe based on Twitter and two-minute Youtube videos is dealing with the fact that the economic downturn is not going away just because we’ve all become bored with it. While the signs and the trends are clearly pointing up, we’re not there yet. We are probably not going to be “there” for quite a while.
People continue to face layoffs, housing prices continue to drop, and GM is not the last company that will file for bankruptcy this year. All of these downward trends have slowed considerably, but it’s going to be a while before we replace the dreaded “r”-word (recession) with the eagerly anticipated “r”-word (recovery).
Meanwhile, the impatience in the natural gas commodity market is palpable. They jump, they come to their senses, then they turn around and do it all over againg.
There are plenty of indicators that gas, like the economy, hasn’t quite bottomed out yet. There are plenty of respected voices saying we will see the other side of $3.00 before the year is out. Which means our favorite new guilty pleasure should be continuing to entertain all the way through 2009. Don’t touch that dial!
At Cost Containment Intl., we’re content to watch others jump the gun. Our goal for you is a long term plan designed to secure your long term future. We all know where slow and steady get you. Give us a call.
That’s the correct Jeopardy question to the answer: “The lifetime during which the United States will run out of natural gas.”
In other words, we’ve got a lot of it. We may very well have more than a lot of it.
At least, we think we do. Until we develop the ability to see through solid rock, we can only estimate how much natural gas lies underground within the United States. This is why figures that you will see published are complex and often contradictory, because most people have a strong vested interest in presenting the figure as being either high or low, and there are many different sets of figures to choose from. We have discussed the complexities of this issue in a previous post, which you can read here.
Basically, the question of how much domestic natural gas we have comes down to a combination of three sub-questions: do we have geologic proof that it’s there, or are we just guessing; if we have proof, do we have the technology right now to get it out; and if we have the technology, does the current market allow us to actually put up wells and started producing profitably? Depending on how many “yes” answers you expect, the figure you end up with is very different. This is why you will hear people categorizing their totals using terms like “undiscovered recoverable resources.”
Here, in a nutshell, are the current best estimates.
If you’re going to hold your total to the highest possible standard, the United States has enough proven, recoverable reserves for the next ten years, assuming current usage.
If you’re willing to stretch your standard to include all the gas we know we can get at, that figure stretches to between eighty and one hundred and twenty years.
If you’re willing to stretch a bit farther, and assume that we will continue to improve our technology, the figure stretches into thousands, and perhaps even tens of thousands, of years.
Why are these figures so different? Because our whole conception of how we mine for natural gas has changed radically in the past decade. New drilling technologies now allow us to remove natural gas from geological formations that were previously thought impossible to tap.
The most important are shale deposits and coal gas deposits, particularly shale. We have only scratched the surface of what these new resources can produce. And it’s notable that most of these new resources are located throughout the lower 48 states, in fairly close proximity to existing pipelines.
The wild card, which might extend natural gas reserves beyond the foreseeable future, is a source we don’t yet know how to tap: huge deposits of frozen methane trapped under the ocean and the ice of Alaska. The potential here dwarfs all previous natural gas sources…indeed, all previous sources of all the fossil fuels.
This is bad news to a lot of people. For natural gas producers, it speaks of continued ample supply and, as a result, continued low prices. For green energy supporters, it takes some of the shine off the argument that fossil fuels are running out. And for investors, it raises doubts that they will see a repeat of the profits they took in the first half of 2008.
But let’s not forget: supply is only half of the equation when it comes to price. And future demand for natural gas, both domestically and internationally, is another question with many possible answers. It remains to be seen how the emerging economies of Asia and South America will rebound from the current economic downturn, and which energy source will fuel this rebound.
There are also many questions about the role natural gas will play, above and beyond it’s current usage, in America’s energy future. Will it power our cars? Will it replace coal as a way to reduce emissions for generating electricity?
We’ll keep you posted.
This past week wasn’t all that interesting. This coming week will be.
Prices bounced around a bit, but more or less stabilized around $3.50 following last Thursday’s precipitous drop, which came hot on the heels of last Thursday’s storage report. One can feel, however, the pull of a gradual slide towards the $3.00 mark. Considering that the fundamentals of the natural gas market, the outlook for the national economy and the forecast for the global economy haven’t changed all that much from where they were last week, or the week before that, or the month before that, this is entirely predictable.
It may have nothing to do, however, with what happens to natural gas prices this week. Because this week marks the turn from May into June, and funny things have been happening to the NYMEX price when the end of the month comes around. It will be worth watching to see whether this turnover is “funny” or not.
We’ll promise you one thing: nobody knows for sure.
It’s been interesting reading the market analysts these past few months as they try to come to terms with 2008. This past year saw the natural gas market endure greater volatility than ever before in its history, and also saw it follow a path that completely contradicted traditional market predictors: prices rose like a rocket during the summer, then plummeted during the winter.
And while most analysists have stuck to their guns in explaining the market according to traditional market fundamentals, each week brings a new onset of head scratching.
At Cost Containment Intl., we think they actually know the answer. They just don’t like it.
We’ve written many times in the past about the role that speculation is playing in the energy markets. Speculation is a fairly new factor for energy, and it’s a factor that has changed radically in the last few years due to the influx of a new generation of investors and fund managers. They have littler aversion to risk, they’ve enjoyed a taste of quick, easy profits, and they have little patience. They are undeterred by the fact that they’re not schooled in the fundamentals. They don’t mind playing fast and loose, especially when they’re playing with other people’s money.
In other words, they’re completely unpredictable. They tend to rush in and rush out (as we’ve seen over the past couple of months), leaving no more than tantalizing clues as to what started the rush. They amplify small price trends into major bumps. And in the process they have added a level of complexity to predicting the market which no one, as yet, has come to grips with. Most analysts are either leaving them out of the equasition or minimizing their impact.
What this means to you. We’ve said in the past that managing energy costs requires the combined skills of an engineer, an economist, a geologist, a climatologist, and a political scientist. Looking ahead, you’ll have to be a psychologist, as well. While it is doubtful that market factors will converge again into the “perfect storm” that was 2008, it’s not out of the question. Nothing is out of the question right now.
There is one factor, however, that you can predict and even control: your own tolerance to risk. This is a good time to take your own pulse, know your own mind, and set up an energy plan that matches your personality. Because the decisions won’t be getting any easier. We’re here to help.
I was watching one of those “World’s Most Amazing Videos”-type shows the other day, and saw a video where a bungee jump almost went disastrously wrong, with a television crew there to catch the whole thing. I don’t remember exactly what happened during the jump…there are an awful lot of these videos of extreme stunts going wrong on television these days…but I do remember what the jumper said to the television interviewer after they got safely to the ground.
The interviewer asked whether, in retrospect, the jumper would rather not have risked the jump.
The jumper responded that, even knowing what they now knew, it would still have been worse to go through life never knowing whether they had the courage to actually take the jump.
This story encapsulates everything you need to know about the risks you face as a customer in today’s energy market.
While there are all kinds of hedges available to you…and at Cost Containment Intl., we are strong advocates of hedging whatever energy plan you choose…your energy plan will be based on one of two basic approaches. You can lock in a fixed rate. Or you can ride the market with a variable rate.
The choice is traditionally presented as being fixed=no risk, variable=risk. Looking back at 2008 and the lessons it taught us, we need a new way to look at risk. As the bungee jumper shows us, it’s really a question of what kind of risk bothers you the most.
Fixed rate plans offer predicability. Stay within your contracted usage, and you’ll know exactly what your energy costs will be for the length of your contract.
Variable rate plans offer flexibility. If you’re positioned to control use, you can maximize your savings and minimize your loss by matching highest use to lowest price.
With a fixed rate plan, the risk you run is that you’re going to see prices dip below your fixed rate and regret the flexibility you no longer have. The sure price is not the sure bet.
With a variable rate plan, you run the risk that prices will go high and then keep going higher, and regret the fixed rate you could have locked. The water is often deeper than it looked when you dove in at the shore.
As 2008 has shown us, we are entering a new age of volatility in energy prices, when traditional predictors and traditional patterns are not as reliable as they once were. Which means that you, the consumer, must develop a new understanding of your own tolerance to risk.
It starts with a simple question. Which would bother you more: the risk you took and lost, or the risk you never dared to take? When you know the answer, you will have the foundation for the right energy plan for your future. Cost Containment Intl. is ready to help you find the right answer.
What we’re hearing is a great big settling sound. That would be NYMEX natural gas prices heading, bit by bit, back down to where they belong.
You can only ignore the facts for so long. Or, in the case of NYMEX, the fundamentals. And whoever triggered the price jump that got May off to such a riotous start has gradually been coming to their senses.
There’s plenty of gas. There’s going to be plenty of gas for quite some time now. The “bottom” which everyone is looking for is, most likely, a trough that will extend into 2010, and it’s still a bit early to be getting in ahead of the eventual rise.
The past two weeks have seen a gradual downward trend from our latest example of irrational exuberance. The NYMEX broke below $4.00 on Tuesday, following two weeks of steady decline, and has been bouncing around the $4.00 mark ever since…
…up until now. The weekly storage report was released just a few minutes ago, and…big surprise here…it shows a larger than expected injection. This has…big surprise again…taken what little wind was left out of the sails of even the most exuberant speculators. NYMEX is now busy falling off a cliff, to a new low around $3.65. There’s no reason to believe, however, that this is as low as we’re going to go before we go up for real.
What this means to you. Once is a paradox, twice is a trend. We’re going to see bounces like this in NYMEX right up to the point that the actual recovery begins. Count on it. There are a lot of people out there, with a lot of money to spend, who are anxious to be the “first ones in” on the inevitable rise in natural gas prices. A lot of them are not traditional energy investors, and they don’t necessarily know or follow the traditional rules of the market. They have a lot of faith in their own smarts, and they take great pride in thinking “outside of the box.” If the market fundamentals say prices are going nowhere but down, they will look for signs outside of the market that say NOW is the time to think up. They don’t just want to be richer than you are, they want to be smarter as well.
And they’re going to stick to this plan no matter how many times they end up licking their wounds after jumping too quickly.
Sooner or later, they’re going to be right. And that means that the inevitable recovery of NYMEX natural gas prices is going to begin with a bang. If you’re sitting on your energy future, waiting for NYMEX to hit that best bottom, understand that the bang this time was a shot across your bows. Don’t get left behind.