Natural gas looks for long-term support in LNG trade agreement

China Slows Commodities Grow

A weaker than expected China growth number and finality on the Italian election is giving commodities new life. The market is rebounding on the thought that despite the efforts of Wen Jiabao to slow the housing market in China, perhaps not all economic stimuli will fall to the wayside. Oil imports into China jumped 7.5% over one year ago levels. China’s manufacturing growth hit a four-month low in February, HSBC PMI hit 50.4 for the month, down from a final 52.3 in January. The figure was seasonally adjusted to take account of the Lunar New Year holiday that fell in the middle of the month.

Reuters reported that hopes of a victory for a pro-reform Italian government helped fuel a stock market rally and support government bonds on Monday in the final stages of voting in the general election. Opinion polls before the vote and a low turnout on the first day of voting on Sunday, prompted some traders to place bets on a victory for the center-left Democratic Party (PD) of Pierluigi Bersani in coalition with outgoing Prime Minister Mario Monti. The surge in the euro helped oil and products as well.

Natural gas is popping and readers of The Energy Report know that long-term I think we have hit a major bottom and it looks like I am not alone! Bloomberg’s Naureen S. Malik, Yuji Okada and Shigeru Sato wrote, “Investors betting U.S. President Barack Obama’s summit with Japan’s Shinzo Abe today will spur American natural gas exports may find bargains in 2016 futures. Gas for delivery in three years may rise to between $5 and $8 per million British thermal units should LNG terminals from Texas to Oregon start moving cargoes, according to estimates from BNP Paribas, Price Futures Group and Barclays Plc. That’s at least 14% higher than where markets are pricing 2016 gas today, based on Bloomberg Commodity Fair Values. As much as 10% of U.S. output is likely to be earmarked for export as LNG by 2016, according to Goldman Sachs Group Inc. estimates.""

Japanese Prime Minister Abe will ask Obama to clear exports from shale deposits to Japan when they meet in Washington, seeking to secure U.S. gas that costs half as much as supplies in Asia, according to Japanese officials. While exporters from Exxon Mobil Corp. to BG Group Plc are anticipating U.S. consent, Dow Chemical Co. says it would drive prices higher and curb investment in new plants. “It would certainly be meaningful and it’s certainly the right thing to do,” Stephen Schork, president of The Schork Group Inc., a consulting group in Villanova, Pennsylvania, said in a Feb. 19 telephone interview. “It’s a very tough thing politically to go along with” and U.S. markets aren’t pricing in approval, he said.

The Energy Department has received applications to build about 24.8 billion cubic feet a day of capacity to ship LNG to countries with which the U.S. doesn’t have free trade agreements, government data show. Both the export of LNG, gas frozen to liquid form for transportation on ships, and the construction or expansion of terminals require authorization from the Energy Department and the Federal Energy Regulatory Commission.

BNP Paribas recommends buying natural gas for 2016 to 2018 based on its forecast that 2 to 4 billion cubic feet a day of the proposed LNG projects will be developed within the next five years, adding to demand growth from the industrial and power sectors. U.S. prices will likely average $4.50 per million Btu in 2014 and reach $5 in 2016, according to Teri Viswanath, New York-based director of commodities strategy at France’s biggest bank. She expects competing LNG projects to build 15 billion cubic feet a day of capacity during the same period. “If we get a significant wave of export facilities being built and that is concentrated, I think we could see an uptick in prices in the 2017 to 2018 time frame,” Biliana Pehlivanova, an analyst with Barclays Plc in New York, said in a Feb. 20 phone interview.

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