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80 comments on A little more illustrative info on Russia

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Sunlight on February 10, 2006 - 11:23am Permalink | Subthread | Comments top
All this stuff on Russia is great and yes I have noticed that finally the MSM is beginning to pick up on declines in Burgan and Cantarell.

On the other hand, have you folks noticed the collapse in natural gas prices since December? After hitting a high of $15.57/mmbtu in New York December 13 natural gas is now selling for $7.35/mmbtu as I write. Seems like warm weather (perhaps driven by inceases of atmospheric greenhouse gas concentration) has put a large dent in demand for this winter's heating season. And if current weather patterns hold, demand for natural gas may grow less slowly than many respected analysts, including Matthew Simmons, anticipated, at least for North America. (As I noted the other day, with the melting of polar ice and its effect on the Gulf Stream, the reverse may be happeing in Europe.)

I'm not advocating either complacency or air pollution, just saying that North American gas consumers seem to have caught a break this year, and if they are lucky the break might extend another year or two.

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davebygolly on February 10, 2006 - 11:50am Permalink | Subthread | Parent | Comments top
Yes, the whole situation with gas this winter is something I don't understand either. Everything I read lead me to fear that the situation was going to be a lot worse than it turned out--even taking into account the mild winter.

I'd love to see a discussion of that.

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Stoneleigh on February 10, 2006 - 12:02pm Permalink | Subthread | Parent | Comments top
My suggestion would be that speculators were driving up NG prices in anticipation of exactly the situation you were expecting (betting on the consensus - lemming alert). They lost the bet when the mild weather resulted in lower than expected demand. Speculation drives price volatility in tight markets.
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creg on February 10, 2006 - 4:35pm Permalink | Subthread | Parent | Comments top
http://www.netcastdaily.com/fsnewshour.htm    

Other Voices: G. Michael Bolser  He maintains that the NG prices have been so weird that he believes there has been central bank kinds of interventions. He has a web business @ interventionalanalysis.com  trying to find indicators of gov/banking meddling, and maintains this is especially true with precious metals.  Could this be?

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Agric on February 12, 2006 - 9:20pm Permalink | Subthread | Parent | Comments top
Yes, they do meddle. Mostly very successfully / effectively - it doesn't often make profitable sense to bet in the marketsagainst people with bottomless pockets.

There is plenty of evidence of manipulation of gold prices, just hunt around the gold sites and you'll find opinion and some hard evidence. There is circumstantial evidence they intervened in oil markets when the Katrina spike hit, probably mostly to get their proxies out of a short hole. I know almost nothing about NG trades so won't comment on that. They are occasionally active on stocks to prevent significant falls. It's why they are known as the PPT (plunge protection team).

But the effects are much greater than their intervention. Just the awareness that the PPT may meddle changes market behavior quite significantly - it knows the risk in the 'bad' direction is more limited than in a 'true' market. 'Problems' will occur, however, should the PPT or whatever fail to hold the line, then the market may take real control and perhaps over-react.

The recent price breakout in gold may be an example. It's now about 20% higher than a few months back, the move happened quite fast, the 'controllers' didn't have the bullets to stop it so had to stand back and let it rip. They will be intervening already or soon, the price may drop back to $500 or even lower, then another upwards wave will force the price higher. Spotting that moment could be lucrative, getting it wrong, costly. I'd be looking to late March as a buying time for gold unless geopolitics intervene, I'd be selling just now.

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unplanner on February 10, 2006 - 12:04pm Permalink | Subthread | Parent | Comments top
The mild winter really had to have helped out. What I am wondering is how much demad was destroyed out of profit (companies selling their nat gas at inflated prices and shutting down temporarily), out anticipation (efficiency measures) or fear (just plain shutting down an already failing business before debts get worse).
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Leanan on February 10, 2006 - 12:05pm Permalink | Subthread | Parent | Comments top
The winter was insanely mild.  

Warm January saved winter gas supply

Here in the northeast, the weather has been so warm it's a scary.  The pear tree outside my window budded in January.  I think it's close to blossoming - or would be, if a nor'easter weren't blowing in this weekend.  

The warm weather is not all good news.  It means not much snow pack, which might mean drought this summer.  And if the summer is also unusually warm, we'll be using up natural gas for air conditioning.

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Donal on February 10, 2006 - 3:01pm Permalink | Subthread | Parent | Comments top
There's some sort of saying, "Warm in Winter means a full graveyard come Spring."
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kjmclark on February 10, 2006 - 12:28pm Permalink | Subthread | Parent | Comments top
I've of heard of at least five reasons that gas prices are down:

1. January was one of the warmest Januarys on record for much of the midwest and northeast. This pulled the rug out from under demand and allowed inventories to build.

2. The fall was dryer than usual in many grain growing areas, requiring less gas than usual to dry the crop for storage.

3. Some heavy industrial users of gas cut back their use because of the high prices. Supposedly fertilizer manufacturers, chemical companies, and some plastics manufacturers have cut back significantly. There have been some accounts of these companies selling their gas from forward contracts back into the spot market to make money.

4. Insulation and wood stove sales have been unusually high. Lots of people are getting the message and conserving in various ways.

5. Production is slowly coming back on line in the GOM.

The trend is probably still intact

but we dodged a bullet with the near record warm January. Next year we get to try our hand at dodging another bullet!

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OilTrader on February 10, 2006 - 6:22pm Permalink | Subthread | Parent | Comments top
Also,

Natural Gas futures usually follow a seasonal pattern of bottoming around mid-February.  It is very consistent pattern.

...hopefully it will occur this year too since I just started nibbling long on NG... :)

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jkissing on February 10, 2006 - 11:06pm Permalink | Subthread | Parent | Comments top
High prices caused demand destruction by anybody who could avoid or delay consumption, plus swithching to oil by those utilities with that capacity.
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westexas on February 10, 2006 - 12:07pm Permalink | Subthread | Parent | Comments top
Curtailed industrial demand (because of high prices) + lower heating demand (because of warm weather) = more than sufficiently lower consumption to offset the hurricane related falloff in production.  Therefore, we have a larger than normal supply of natural gas in storage.

In the short run, it is going to be interesting to see where natural gas prices end up.   But, as a natural gas insider told me one time, "In the natural gas business, the difference between a glut and a shortage is 2%."  Volatility does not begin to describe natural gas prices.  In the past few weeks, one day fluctuations in prices were greater than the absolute price that we were getting at the wellhead a few years ago.  

There may be some pretty interesting buying opportunities this summer in domestic oil and gas companies that are heavily weighted toward natural gas.

Where it will get interesting is if,  as I suspect, Cat 5 hurricanes are going to be a recurring phenomenon on the Gulf Coast.    The damage will be cumulative as both the production and drilling infrastructure is damaged, plus the personnel factor.  In 2007, for every two experienced oil and gas professionals that we had in 2000, there may be only one left.  

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Jamie on February 10, 2006 - 4:30pm Permalink | Subthread | Parent | Comments top
The whole GoM situation has been bothering me (from an outside the industry no specialist knowledge perspective)I recall that Katrina and Rita between them destroyed 100+ rigs / platforms. Is there any knowledge yet on what will sometime and what will never come back on line?

It seems that the behaviour of offshore fields lend itself, particularly in bad weather areas, to steeper decline curves and possibly sudden loss of URR. If there is a problem in an onshore field and there is still some accessible reserve left it must be relatively easy to replace simple infrastructure, like multiple stripper well pumps, and "suck out the last drop". If the field is offshore and you lose a platform to a Cat 5 or whatever there needs to be a lot more left to justify putting a new platform out. Thus an offshore field could suffer a "loss" in URR from factors which would be overcome onshore. Or am I just displaying my ignorance here?

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westexas on February 10, 2006 - 6:41pm Permalink | Subthread | Parent | Comments top
I'm certainly not an offshore expert, but I believe a lot of the GOM production from lower volume wells was permanently lost.  

I have heard that offshore insurance rates are already up 400%.  If we have more Cat 5 hurricanes this summer, the industry and their insurance carriers may begin to have serious doubts about putting billion dollar platforms in the way of recurring Cat 5 hurricanes.

In any case, this is against a backdrop of long term declining North American natural gas production.

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Agric on February 12, 2006 - 9:40pm Permalink | Subthread | Parent | Comments top
Your insurance comment is significant, WT. I've seen words that insurance costs have been a material factor in not restarting some wells.
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Agric on February 12, 2006 - 9:37pm Permalink | Subthread | Parent | Comments top
The MMS produce stats on the GoM shut in, now reduced to fornightly, the link is usually first in the newsbriefs on this page:
http://www.mms.gov/

As of Feb 8th:
"Today's shut-in oil production is 364,195 BOPD. This shut-in oil production is equivalent to 24.27 % of the daily oil production in the GOM, which is currently approximately 1.5 million BOPD.

Today's shut-in gas production is 1.554 BCFPD. This shut-in gas production is equivalent to 15.54% of the daily gas production in the GOM, which is currently approximately 10 BCFPD."

These numbers haven't changed much recently, a substantial proportion of what is currently offline is likely to remain so until the next hurricane season which officially commences on 1st June.

Offshore, and especially deep water, is prone to higher decline rates for economic reasons: it is expensive to produce on a daily basis so operators seek to get to max production asap and hold it there for as long as possible, then cut and run when the production and economics go against them. They typically plan and use all the EOR tech that might help from the start.

It is completely possible that some wells are not deemed eonomically worthwhile restarting after the 2005 hurricanes but I know of no collective source of such data.

[Note: I am a non-industry outsider from UK so maybe better if an insider from the GoM commented]

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