22 comments on UK Natural Gas Prices, Already at Historically High levels, Set To Rise
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22 comments on UK Natural Gas Prices, Already at Historically High levels, Set To Rise
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I didn't know this until tonight, but the NYMEX now lists futures contracts for natural gas out until December 2020!! Thats over 12 years out- (Crude oil still goes out just to 2016). I wonder why they did this....
In April 2017 nat gas futures are lower than April 2008. So the information in this post is either incorrect, the US has some special gas cache, or futures are VERRRRY cheap.
(question re oil strip - what is special about summer 2010? oil futures gradually decline from $109 to $101 in jun 2010 and then gradually rise back up to $104 by dec 2016 - I wonder if this is expected production related (supply) or expected recession related (demand) or neither?
Perhaps with positive-feedback-global-warming there will not be as much need for NG for space heating purposes in 2020.
Alas, I wish it were so, but with global warming more natural gas will be used in generating electric power for air conditioners. And, on the other hand too much global warming may raise the temperature of the oceans, causing a release of methane gas from the ocean depths, which would accelerate global warming and if this continued.............things could get very toasty.
If Piebalgs gets his wish, then more biofuels will be produced in the world. Since he's against deforestation, that means more artificial nitrogen fertiliser use, which means more natural gas goes into that. So the production of ethanol drives the price of natural gas higher.
N-fertilizer is only about 2% of total natural gas consumption and it's not particularily difficult to produce from numerous other sources(E.g hydrogen from gasification + water gas shift of some corn stover, saw dust, bagasse, waste paper).
nate- one reason that the distant futures price looks cheap is that the price incorporates inflation expectations over the term of the contract. the contract is quoted today in current dollars, but it settles in 2020 (or whenever) in settlement date dollars. assume, e.g., 3% inflation per year 2008-2020 and recalculate the 2020 contract settlement price accordingly.
So there's not one but TWO unknowns in the price:
1. Gas availability (the one TOD tends to concentrate on)
2. Inflation expectations...
Can you explain why oil futures have risen given your explanation of contract settlement prices -surely with the dollar falling they should also fall as Inflation expectations pick up...
Nick.
noutram- only one explanation makes sense: oil investors expect price to rise in real, not nominal terms. i.e. that the price will rise after inflation adjustment is taken into account. why? possibilities: 1. rising demand; 2. static or falling supply; and/or 3. the dollar loses its status as the world's reserve currency and future transactions will be priced in some other currency (such as euros). of the three, the latter is probably the most dramatic in its immediate consequences. imagine thousands of transactions initially priced in dollars that must be completed in another currency. it would be a currency run on the dollar unlike anything since the confederate dollar or the tsarist rouble.
The reason for this is counterparty risk - the risk to each party of a contract that the counterparty will not live up to its contractual obligations. Lots of people would buy these contracts if they thought that they would be honoured.
Do you seriously think that nothing dramatic is going to happen in the world of finance between now and 2020? The whole edifice is teetering at this very moment.
Personally, I would not advise option contracts as a way of protecting oneself anymore than I would encourage people to take out life assurance policies. We will have to learn again how to take one day at a time.
I hope people seeking safety will be interested in buying shares in railway projects in robust economies, new nuclear power, new wind power, companies manufacturing parts for plug-in hybrid cars, biogas projects, lending to energy saving home improvements, etc.
There are hundreds of reasonable business ideas that gives a low but fairly certain return on investment during a time of change driven by lowering greenhouse gas emissions and energy resource constraints.