TFN eNews 11/10/2009: I’m glad we didn’t take gains last week!
Published via e-mail broadcast on November 10, 2009
In today’s TFN eNews:
* The IEA confirms
* Gas price upheavals ahead
* The anti-protectionism weapon
Dear TFN eNews reader,
After weeks of TFN prophesizing the coming natural gas glut, the International Energy Agency went out on a limb today. Its annual outlook prognosticates that “a glut of natural gas is looming”.
Here’s what the Wall Street Journal wrote about this today: “The boom in North American shale gas and a demand-depressing recession mean there will be a giant amount of unused pipelines and liquefied gas terminals, enough to move 200 billion cubic meters, or 7.06 trillion cubic feet, by 2012. That’s more than enough for all of Africa or Latin America.”
This oversupply, according to the IEA, could have “far-reaching consequences for the structure of gas markets and for the way gas is priced in Europe and Asia-Pacific.”
There’s some truth to that. Natural gas is priced differently in America and the rest of the world. In Europe and Asia, for example, natural gas is bought and sold under long-term contracts, with prices indexed to oil. If oils keeps going up, gas will, too, independent of supply levels.
In North America, gas prices follow supply and demand (and, of course, the flux of the speculative capital du jour). If prices collapse in the United States, liquid natural gas (LNG) exporters are forced to try unload their over-supply in Europe and Asia
Accordingly, LNG exporters are increasingly trying to hit up Europe and Asia, depressing spot prices and shaking up the fixed-price system.
It will be interesting to see how this pressure will affect the pricing structure of natural gas in 2010.
For Russian gas monopolist Gazprom — which has locked up over a quarter of Europe’s gas business — this might become a headache. And since a large chunk of Russia’s annual state budget relies on Gazprom revenues, I wouldn’t be surprised to see the Kremlin trying to break a lance or two against the free market.
*** Meanwhile, we’re enjoying the view!
TFN’s chief strategist Andrew Snyder writes: “Across the globe, the IEA believes power generation and industrial natural gas demand will drop 3%. It will bounce back next year, increasing by an average of 2.5% from 2010 to 2015. But supply is still expected to outpace demand until late next decade.
“With massive amounts of natural gas flooding domestic markets, falling prices are the most obvious variable in the equation. What many investors aren’t looking at are recent preparations for natural gas imports. Remember, just a few years ago, we were expecting a strong natural gas shortage here in the States. In response, massive LNG offloading and storage terminals were created to import LNG from abroad.
“Now, of course, you’re hard pressed to find any LNG shipper that can deliver a boatload of gas at today’s prices. It’s far cheaper to pump natural gas from Ohio, West Virginia, or Pennsylvania than it is to top off a tanker in Kuwait, ship it across a couple of oceans and unload along the Texas coast.
“That’s pretty bleak news for the nation’s LNG import business, which was just getting off the ground.
One company I have been watching quite closely is Cheniere Energy (AMEX:LNG). The $116 million company is developing LNG terminals on Louisiana’s Sabine Pass.
“Since March, when shares of most everything doubled in value, Cheniere’s share price fell from $5.00 to just $2.06 at the moment. Almost every day, the price is going lower. Thanks to news like we got from the IEA, the trend isn’t likely to end anytime soon.
“That’s phenomenal news for TFN Strategic Trader subscribers. I made them aware of the situation almost a month ago and advised them to buy a very specific set of puts. Since then, the value of those puts has risen by over 30% and is about to go even higher — as the underlying shares are down by nearly 2.5% so far today…” (More here: http://www.todaysfinancialnews.com/oil-and-energy/342-gains-from-natural-gas-implosion-10307.html)
Now, the 30% on the Cheniere options would be alright. But I’d like to point out that another set of puts Andrew recommended three weeks go were up 342%.
(Thank God Andrew didn’t listen to me when I ever-so-subtly suggested to take gains off the table at 180%.)
“This trend is just getting started. In fact, I believe we won’t see the real action until mid-January, when the market finally realizes it made a massive mistake this past summer!”
*** If there’s one beneficiary of America’s heedless rush into debt, it’s China. The lower the dollar falls, the further the yuan drops against the euro and yen, giving Chinese exports an additional edge over the global competition.
And with no new jobs being created outside America’s academic and government bureaucracies, China needs any edge it can get to keep its bubble inflated.
It’s not going unnoticed.
European Central Bank President Jean-Claude Trichet and Japanese Vice Finance Minister Yoshihiko Noda last week called on Beijing to let the yuan strengthen.
Only if Chinese exports revive, says Beijing. And that’s a long way off.
Chinese exports are still in decline: Overseas sales fell 11 straight months through September and were down 13% in October.
Should Washington’s protectionism against China take root, China has the option of making things quite unpleasant for its global manufacturing competition. They might just lower the dollar-yuan peg!
***The U.S. Retirement System could owe YOU Money!
A recent University study reports that millions of Americans could qualify for an extra $10,000 or more per year thanks to the U.S. Govt’s retirement program. If you’ve worked and have paid into this program, it’s your legal right to collect your full benefit: http://www.stansberryresearch.com/pro/0909TRWANY49/MTRWKB04/PR
*** Quote of the Day:
“My first column, more than 30 years ago, was titled ‘The Profits of Doom.’ Recent news stories about the millions of dollars that Al Gore has made out of his ‘global warming’ hysteria suggest that some things haven’t changed much in three decades.”
– Thomas Sowell, Creators.com
Recommended Reading:
342% gains from natural gas implosion
Natural Gas Prices: “Stealth Buyer” tips his hand
Today’s Top 3 Financial News Stories:
FT.com – US faces a slow rebound, says Fed dove “The US faces a slow and protracted L-shaped recovery with only a gradual upward tilt, Janet Yellen, the president of the Federal Reserve Bank of San Francisco said on Tuesday.”
MoneyNews.com — Harvard Profs: This Crisis Is Not Over “The global economic crisis is not over, said Harvard University professors Kenneth Rogoff and Niall Ferguson, challenging the G20 group of wealthy countries’ assumptions that the world is on the road to recovery. Public spending in the form of bailouts and stimulus packages will create a debt burden for the world’s governments, the two professors told Bloomberg.”
Bloomberg.com — U.S. Stocks Retreat as MBIA, Fluor Slump, Dollar Rebounds “U.S. stocks fell following six straight gains for the Standard & Poor’s 500 Index as earnings disappointed investors at MBIA Inc. and Fluor Corp. and a rebound in the dollar weighed on commodity prices.”
Cordially yours,
J. Christoph Amberger
Executive Publisher, TodaysFinancialNews.com
P. S. Clandestine signal sets stage for triple resource opportunity:
Lock in 256%, 678% even 1,894% gains as a secret hedge fund swings for the fences… and misses! The markets have got it all wrong and I will prove it. Read on…
http://www.todaysfinancialnews.com/TST/GAS/WTSTKA03.html
Next Article: Cup half full: Silver Wheaton (NYSE:SLW) packs on gains as gold prices rocket
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