Big Bad Ben Bernanke vigorously defended QE while acknowledging some risks in a sometimes heated testimony. With the negative outlook, gold and silver and the bonds got a boost and oil was unmoved as it focused on what seems like an ever increasing supply situation. The American Petroleum Institute reported yet another crude oil supply build. This, more than likely, is foreshadowing another build from the Energy Information Administration and adds to the perception of a U.S. oil glut.
The API reported that crude oil supply increased by 904,000 barrels. While supply did fall 206,000 barrels in Cushing, Oklahoma, the supply overall is still more than ample. Declines in distillate and gasoline reflect weather and the fact that refiners are starting to draw down winter supply. The crack spread got cracked and the gasoline market is confirming its major top. Heating oil stocks fell 356,000 barrels, but out East it is natural gas that is becoming all the rage. Ethanol is being influenced in the front end due to tightness in the cash corn market as deliverable supply is hard to find. The new crop is unmoved. The break in crude oil, that we called, is right on target and the products are dutifully following.
Natural gas was flatish with weather holding us up. The market was reluctant to surge higher as the recent run has made traders worried about a correction, but at the same time the demand should be decent. The storage report should show a sizable draw around 160 bcfs due to a big drop in temperatures. Different parts of the country showed strong demand and while Henry Hub may not see all of it, the longer term shift to natural gas continues. Look at long term option plays for natural gas far out in the curve. In the front end, look to write puts on breaks.
Reuters News reports, “The New England electricity grid operator and association of power producers have filed with federal energy regulators to force electricity providers to submit bids for the day-ahead market two to three hours earlier to insure they tap enough supply to support gas-fired power generation. Filing earlier bids may not allow a power provider to see a full spectrum of natural gas prices since the market trades mostly between 10 a.m. and noon EST. Natural gas makes up the fuel component of the power price. The ISO New England and New England Power Pool (NEPOOL) filed a request on Feb. 7 with the U.S. Federal Energy Regulatory Commission (FERC) to bump up the time to file bids under the Federal Power Act, citing a need to improve reliability of receiving natural gas to support power generation. "Increased demand for natural gas in New England has increased competition for the use of the natural gas pipelines and has made it more difficult for generators to obtain natural gas for power generation," the filing said. Market comments in favor or against the proposal are due to FERC on Thursday. The New England region has too little pipeline capacity to deliver as the fuel has grown in popularity for both power generation and space heating. Prices at a major New England pipeline hub, Algonquin, located in the Boston area, have risen by as much as two-to-six times during peak weather demand. Natural gas accounted for 15% of electricity production in New England in 2000. By 2011, it had grown to 52%.
Reuters also is reporting that Trinidad and Tobago is turning to markets in Latin America and the Caribbean for sale of its natural gas as its exports to the United States, once its major customer, quickly decline in the face of the North American shale gas revolution. Energy Minister Kevin Ramnarine said Trinidad and Tobago has a lucrative role to play in regional energy security through the export of its natural gas. “Our Caribbean and Latin American neighbors are buckling under the weight of high oil prices that have impacted on their balance of payments and contributed to high prices for electricity and transportation fuels," he told an energy conference in Port of Spain last month. Gasfin, a U.K.-based company that develops mid-size LNG plants, signed a Memorandum of Understanding with the Trinidad and Tobago government last year to build a $400 million LNG plant producing 500,000 tons annually to supply Caribbean markets. Centrica, another British firm, plans to begin development of its Block 22 acreage which is estimated to contain up to 1.3 trillion cubic feet (37 million cubic meters) of gas, and the proposed option for the commercialization of the gas includes a compressed natural gas plant. Ramnarine said the CNG facility gives smaller markets in the Caribbean the option of moving out from diesel or fuel-oil based power generation. Trinidad and Tobago's energy sector contributes more than 40 percent of GDP and 70 percent of foreign exchange earnings, selling natural gas to the Dominican Republic, Puerto Rico and recently to Argentina and Chile. The twin island republic is also eyeing Panama and Costa Rica which are both preparing to build re-gasification terminals as they make the switch to LNG.
The Energy Information Administration wants several companies combined to produce about 20,000 gallons of fuels using cellulosic biomass (e.g., wood waste, sugarcane bagasse) from commercial-scale facilities in late 2012. EIA estimates this output could grow to more than 5 million gallons in 2013, as operations ramp up at several plants.
Source: U.S. Energy Information Administration
Note: Initial commercial scale facilities are expected to produce between 10 and 30 million gallons of biofuels. As yields improve and producers take advantage of economies of scale, this could grow to 50 or 100 million gallons.