The U.S. is emerging as a price-setter for natural gas sales from Mozambique to Japan, as volumes extracted by shale drillers go global, writes Alison Sider and Christopher Matthews.
The volume of Henry Hub natural gas futures traded outside of typical U.S. trading hours rose 31 percent in the first half of 2017, compared with the same period in 2016—a sign that international traders are paying more attention to the benchmark.
It signals a major shift for natural gas markets, which until recently remained largely regional, with most prices linked to oil.
We take you now to the hamlet of Erath, La. And why are we taking you to a town of 2,187 about 150 miles west of New Orleans? Erath is not famous for its modest population. Rather it is also home to the end point of thousands of miles of natural gas lines. This area serves as a natural gas storage facility. It is named for William Henry, the town benefactor. Mr. Henry immigrated from Germany and helped found the local schools.
Between January and July of this year, the volume of Henry Hub natural gas futures rose 31 percent. Prior to 2011 natural gas prices were tied to oil prices. That changed when Cheniere Energy signed the first export contract of liquefied natural gas LNG from the Gulf area. The world wide impact becomes more realistic this week. Now Anadarko will sell LNG from Mozambique, literally an ocean away, selling at Henry Hub prices. In the same way that the Saudis have been the ‘swing’ oil producer at OPEC, the US is now seen as the world swing producer of LNG. It seems realistic to expect that Henry Hub LNG pricing will become the world standard in much the same way that Brent or West Texas Intermediate are oil price standards.
Meanwhile, the world-wide chaos we have been expecting has indeed descended all around. A terrorist attack in Barcelona has already killed 13. Over 100 others were injured some so much that more deaths are expected. This makes the 11th such attack since May 22, 2013 involving vehicles used to kill and terrorize victims.
We have written for weeks expecting weakness in the August to October period. And so it arrived with the DJIA falling some 274 points with all 30 index shares down for the day. Retailers took big hits including Advance Auto Parts and Dick’s Sporting Goods down20%. Not surprisingly the percent of energy shares in bullish position fell again with the rest of the market. That index has fallen from 95% last December to 31.25 percent now, down 28.5 percent Thursday. The low recorded in February 2016 was just under 5%. Which is to say near none of the energy shares were in bullish position.
Bell weather Apache APA is has broken previous support falling to $40. Its February 2016 low was around $332.50. We would not be surprised to see that level tested again. Transocean RIG is actually trading below its 2/2016 level. It is now trading for 18% of its book value. Patterson PTEN a benchmark for West Texas energy service has fallen to $15.41, still above its 2/2016 low at $11.
Crude oil is trading around $47 which is way above its 2/2016 low of $26. So there is much for fear about share prices than oil prices.
We expect to see lower stock prices this week. The DJIA could fall from the current 21,713 to 21,023. This is where it was trading last June, just three months ago. All of this is setting up a buying opportunity in energy.
In researching today’s column I ran across this comment from an analyst at Energy Aspects.
“Prices should be $10 higher given where the fundamentals are,” said Amrita Sen, chief oil analyst at Energy Aspects, an energy market research consultancy. But Ms. Sen said prices were being held back by investor concern over still-rising U.S production.
This reasoning is flawed. Prices are being held back not by rising production but by negative mood towards the energy sector. As with February 2016, sometime in the next couple of months that mood will change, no matter how much oil is stored at Cushing, Ok. And you can bet on that.
Follow Dennis at www.themarketperspective.com