The United States moves to fast track natural gas exports in hopes that it will pressure Vladimir Putin back to reality. The Obama administration approved its seventh export terminal in part to send a message to Russia that in the very near future they will not be the only energy game in town. Russia’s economy is dependent on gas exports and if the United States takes some market share the Russian economy will be at risk. While Eastern Europe looks for alternatives to Russian natural gas Russia is looking to China to be their best customer. Overnight a weak oil market got some bounce after China imported a record amount of oil last month but if China is Russia’s only big buyer in the future then Russia better get used to selling their oil at a huge discount. It still bugs Putin that the Ukraine still controls the pipeline network and his fears that Crimea could become a big oil and gas producer cutting Russia out of the European market. Russia likes to jack up its prices as it customers have no alternative.
The Financial Times is reporting that Eastern European governments are looking to use the prospect of U.S. natural gas exports as a bargaining chip to secure lower prices from Russia’s Gazprom in negotiations over new long-term contracts. Countries like Lithuania, Estonia, Hungary and Bosnia-Herzegovina need to negotiate new deals with Gazprom because they have contracts that expire next year, and government officials say a growing U.S. debate over energy exports is giving them new leverage.
The U.S. House Energy Committee is going to be talking to potential European customers for our LNG and in part using it as a way to show the President’s Energy Policy should be trying to leverage our oil and gas abundance towards making the world a safer place. Also by solidifying the United States as a major energy hub to the globe creating not only many jobs but also a strategic advantage against OPEC and Russia and other countries that have withheld their supply in order to threaten their neighbors and customers. To make sure that no country has the incentive to use oil or natural gas as a weapon to harm their neighbor.
The G7 is also looking forward to more U.S. gas. “A draft communiqué seen by the FT for this week’s G7 meeting in The Hague says: “We welcome the prospect of U.S. LNG exports in the future since additional global supplies will benefit Europe and other strategic partners.”
Closer to home we are still waiting on the opening of the Houston Shipping Channel. Bloomberg News reports that “there are 140 vessels waiting to move through the Houston Ship Channel, the Coast Guard said. The channel is closed from just north of Texas City down to its entrance, at Bolivar. To reopen the channel, the Coast Guard needs an uncontaminated lane for ship traffic and be sure the traffic won’t impede cleanup, Captain Brian Penoyer said yesterday at a press conference. The inspection flights over of the channel and Galveston Bay, following a 4,000-barrel fuel oil spill, are scheduled today to assess conditions for reopening, Tim Hicks, U.S. Coast Guard watch supervisor, said in an e-mail.
U.S. authorities are planning inspection flights over the Houston Ship Channel, home to 11% of the nation’s refining capacity, as the waterway remains closed for a fourth day. Exxon Mobil Corp. (XOM: US) said it reduced rates at its 560,500-barrel-a-day refinery in Baytown, Texas, because of the closing caused by the March 22 accident. Valero Energy Corp. (VLO: US), Marathon Petroleum Corp. (MPC: US) and Royal Dutch Shell Plc (RDSA) also own all or part of refineries on the 52-mile (84-kilometer) shipping lane.
At the same time ethanol prices are soaring. Grain prices are on a tear as weather and tight supply are raising concerns about ethanol availability. A winter that may never end will slow corn plantings putting the crop at additional risk from a summer drought. Plus we could lose some acres as farmers look to replenish Soy Bean stockpiles that are at the lowest level in 10 years. There is little rain in the plains and wheat prices are rising as the winter wheat crop in places like Kansas is being reduced.
On top of that the demand for corn is going crazy. The USDA export inspections hit 1.14 metric tons blowing way market expectations. Demand for beans and wheat has been solid as well.
Dollar weakness is also supporting oil and grain but did little to help gold. Risk aversion seems to be moving to Treasuries for the moment which saw some rising yields. The short end if the curve is coming alive. The difference between the yields on five-year notes and 30-year bonds narrowed to the least since 2009!