Ever notice how those who try to convince people that prices today (or any day for that matter) represent a buying opportunity, can only do so for negative reasons. Here are three of the most common here in the UK:
1) Foreigners: Almost everyone, with the possible exception of Ofgem, don't believe that Russia is threat anymore. But many share Ofgem's equally delusional fear that LNG cargoes won't come to Britain. It isn't quite explained where it will go to but one fear, is that there will some type of Gas OPEC that will cut gas supplies to push up prices. First the economics:
If Algeria, Russia, Qatar etc etc cut gas production prices will go up. That will be the best thing that happened in years to US shale producers, the North Sea, Alberta, Norway, Netherlands etc etc. It would also give a massive shot in the arm to potential shale production in Europe, China, India, Australia. It would be an own goal of massive proportions for such an organisation.
Then the politics.
April 19 (Bloomberg) — Algeria, Africa’s biggest exporter of natural gas, is getting no help from Russia and Qatar in curbing production to increase prices in this year’s worst- performing energy commodity.(Algeria's) proposal would make the group more like the Organization of Petroleum Exporting Countries, whose production cuts helped revive New York crude oil prices last year and pushed them to a 18-month high earlier this month.
U.K. natural gas for delivery tomorrow dropped 11 percent this year in London to 31.5 pence a therm ($4.85 a million British thermal units), or about $26.25 a barrel of oil equivalent. North Sea Brent crude is worth about $84 a barrel.
Can't resist pointing this out :
Rising crude prices, which gained 71 percent last year, are bolstering long-term contract prices for gas, leading buyers including Germany’s E.ON AG, Germany’s biggest utility, and GDF Suez SA to limit contract deliveries and buy cheaper fuel on the open market.
“The spot gas element in our overall supply portfolio has almost doubled,” Wulf Bernotat, chairman and chief executive officer of E.ON, said last month.
Strange how E.ON UK is an unapolegetic price hawk in the UK who see no reason to pass on anything but derisory retail prices wholesale cuts usually by parroting Ofgem's fears. Or perhaps they wrote a lot of Project Discovery themselves? But with a regulator as incompetent as Ofgem, who insist on bending over backwards to raise prices for consumers, E.ON UK would fail their shareholders by not taking advantage of the planet's worst regulator.
Meanwhile back in Oran, the other guests aren't helping the host:
It isn’t possible to limit supply, Russian Energy Minister Sergei Shmatko said April 8. Russia is the biggest single source of gas for Europe, ahead of Norway and Algeria.
“GECF cannot control gas production or prices for the next five or 10 years since the majority of natural gas supply deals are long-term contracts,” GECF Secretary-General Leonid Bokhanovsky said in a written reply to Bloomberg questions. A former executive at Russian pipeline-builder OAO Stroytransgaz, Bokhanovsky was elected as the GECF’s first secretary-general in December.
Qatar, the world’s biggest LNG producer, doesn’t plan to reduce gas output, Minister of State for Energy Mohammed al-Sada said last month.
Egypt doesn’t support a cut in gas production Energy Minister Sameh Fahmy said in Oran today.
And just to underline to those who don't think shale gas has any impact on Europe:
If shale production can be replicated in Europe and Asia, it will threaten the two main markets for gas exports, Caruso said. GECF is “certainly concerned about the success of shale gas technology in North America,” he said.
I've pointed out before that even Russia doesn't share the Project Discovery fears anymore. So is it true that it's only the very odd couple of Algeria and Ofgem who want to push up prices?
No, Ofgem are truly friendless:
Production of unconventional natural gas in the U.S. is sustainable, (Algerian Minister)Khelil said today. It has led to an oversupply of LNG import capacity in the U.S. and Australian LNG output will exacerbate the surplus, he said.
Oil is on the up again.The oil link is broken. It ain't coming back, no matter how hard some people want it. A picture or at least a graph from Reuters, is worth a thousand words.
Three: The economy is recovering, so gas prices will go up, best to buy next winter now. Or perhaps not:
Prompt British gas prices eased on Tuesday on comfortable supply, while prices for contracts for next winter and beyond rose.
And the logic for next winter:
The back of the curve is relatively strong compared to the prompt. People maybe think we are coming out of recession faster, at least the banks seem to," said one trader with a utility
Are those the same banks who failed to predict the recession, or the ones like Goldman who make money out of every side of the market bets?
But whether demand will rebound strongly enough to make a significant impact on supplies remains uncertain, with an ongoing shale gas boom in North America and increasing liquefied natural gas production set to keep pressure on gas prices.
"There's a lot of gas around still," the trader said.
Gas has a floor, but with next January being offered at 15% more than January 2010, this market isn't it. Predictions are meaningless, but history says: Buy spot. And suckers pay retail.