Gas traders start giving it away
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  1. #1
    Registered User Array radmtrbkr's Avatar
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    Gas traders start giving it away

    this article was sent to me by a fellow board member. i assume it was to make the point that u.k. gas supplies are ample. after reading through it though i was left with a few comments and questions so i'll post those along with the news piece.


    Gas traders start giving it away

    BBC NEWS Tuesday, 3 October 2006, 13:26 GMT 14:26 UK

    A glut of natural gas supplies in Britain has seen prices collapse and left traders having to pay for it to be taken off their hands.
    on the surface this sentence seems to indicate there is glut but the reasons for this seem to be clearly spelled out below.

    Wholesale gas prices for immediate delivery turned negative on Tuesday as supplies surged in from the new Langeled pipeline from Norway.

    Britain's gas storage capacity is 96% full so firms need to offload supplies.
    ok so we have a new pipline supplying gas at 100%, storage capacity is full and summer demand is also low, no wonder it's time to unload product.

    As domestic gas bills are based on longer-term contracts, consumers will have to wait for big reductions.

    After trading at an average of 26p a therm through September, the spot price for gas delivered immediately fell to -5p during the course of the day, meaning traders are paying to get rid of it.
    so the speculators painted themselves temporarily into a corner. they unload at a small loss but they have over the long term made a killing. cashing out seems the logical thing to do.


    Mild weather - and a predicted milder winter - is also reducing demand.
    ahh likely one of the most important inputs to the current equation.

    "There is simply too much gas flowing into the UK," said Chris Bowden, chief executive of energy services company Utilyx.

    Lazy market

    Major UK energy companies may be unable to take advantage of the free gas because of the lack of available storage and the fact that they have "hedged" supplies - protecting themselves against the risk of high gas prices over the winter by buying it in advance at a lower price.
    in other words, don't get excited about it because consumer prices will remain high until winter demand rises then it's back to business as usual.

    "You won't see the effect from this on lower domestic bills until after the winter," Mr Bowden said.

    But that will not be soon enough, according to consumer watchdog Energywatch.

    "Consumers have paid a huge price over the last three years - we have seen 80% price rises," said chief executive Allan Asher.

    "It is time for more competition in this lazy old market - we need some Tesco gas and a price war in the gas market to match the price war in the petrol market."

    Dwindling reserves

    Prices are expected to rise again this Autumn as colder weather increases demand and the gas flowing through the Langeled pipeline returns to normal levels.

    The £5.5bn, 746-mile long (1,200km) pipeline started pumping gas from Norway into the UK's supply network last Sunday, and is currently working at full capacity for testing purposes.
    again, mild weather and a new supply temporarily running at 100% have conspired to give the illusion of excess supply.

    It has an annual capacity of 20 billion cubic metres of gas and is expected to supply a fifth of the UK's peak winter fuel demand over the next 40 years.
    40 years? riiight...

    It is hoped the pipeline will ease concerns over dwindling supplies which have sent gas prices in the UK soaring over the past two years.

    The UK's own reserves of natural gas are dwindling so it is necessary to import gas from abroad. the most relevant sentance of the article.
    how long are u.k. domestic supplies going to last? we know they are dwidling quickly, will this new supply offset this? is it politically stable? is it responsible to bank on foreign energy? what happens if russian gas is divereted elsewhere?




    .

  2. #2
    I like traffic cones :S Array made Man's Avatar
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    Crude prices are at 7 months low, but for some reason prices at the stations in the last week increased... just in time for the long weekend. If that's not a case of price jacking, i dont know what is.
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    . Array dhouldsw's Avatar
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    That article talks about natural gas, not gas for cars.

    ;D

  4. #4
    I like traffic cones :S Array made Man's Avatar
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    It is all related.
    "Honda = Boring, Suzuki = Wannabes, Yamaha = Poser, Ducati = Overated, BMW = Compensating, Aprilia = Insecure, Buell = BCIT business... go faKOffee." - PUREVIL

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    Vindicated Array JamieJames's Avatar
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    not really no, gasoline is a byproduct of crude oil. Natural gas is natural gas.
    "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."

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    Registered User Array VanDave's Avatar
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    Quote Originally Posted by made Man View Post
    Crude prices are at 7 months low, but for some reason prices at the stations in the last week increased... just in time for the long weekend. If that's not a case of price jacking, i dont know what is.
    I recently saw a graph showing gas prices versus crude oil prices for the past year or two.

    When crude went up or down, gas more or less followed.

    I can't find that link again, but I remember thinking there was no evidence of price jacking.

  7. #7
    Vindicated Array JamieJames's Avatar
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    Anyways, to make a comparison, storage in North America is also pushing up towards full. In fact a number of natural gas producers are electing to temporarily shut in production. Now they say it's due to prices but with the shortest Natural Gas contract (1 month) trading around $6/mcf, they can still turn a tidy profit. The real problem is there's not much of a market because there's nowhere to put the stuff until we're in withdrawal season.

    What an amazing situation to be in, topped up inventories 1 year after the worst hurricane season ever that shut in and even eliminated some production. How could this be? Partly because on-shore producers have been ramping up production like MAD and demand has adjusted.

    Imagine what production and inventories will look like NEXT year.
    "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."

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  8. #8
    doug
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    i guess we won't be hitting last year's predicted $100 a barrel for oil any time soon.

    can i go buy another gas guzzler yet?

  9. #9
    Learning the hard way. Array skroonk's Avatar
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    The gas prices that we see don't reflect the actual market whatsoever. They reflect the media's information. Gas companies could raise and lower the price to their heart's content cause the bottom line is... WE'RE STILL GOING TO USE IT. People will HAVE to pay whatever the companies choose; so they can charge whatever the hell they want.
    WLF
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    Posing with conviction Array heisenberg9's Avatar
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    Quote Originally Posted by skroonk View Post
    The gas prices that we see don't reflect the actual market whatsoever. They reflect the media's information. Gas companies could raise and lower the price to their heart's content cause the bottom line is... WE'RE STILL GOING TO USE IT.
    Well said!!

  11. #11
    Registered User Array VanDave's Avatar
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    Quote Originally Posted by skroonk View Post
    The gas prices that we see don't reflect the actual market whatsoever. They reflect the media's information. Gas companies could raise and lower the price to their heart's content cause the bottom line is... WE'RE STILL GOING TO USE IT. People will HAVE to pay whatever the companies choose; so they can charge whatever the hell they want.
    I don't agree. This has been studied to death by various governments all over North America. Nobody has proven collusion to date.

    Market concentration or market power is measured in economics with an Index called the Herfindahl-Hirschman Index (HHI). From what I recall, the gasoline distribution business is actually very competitive.

    As you already say, if they wanted to charge higher rates, they could. The price of gas is still relatively cheap compared to the benefit we get from it. We would easily pay triple before we substantially cut back on usage. If these firms were really colluding, they would have already maximized their profits by charging higher prices. The fact that they are not (and never have) demonstrates a competitive market.

  12. #12
    Learning the hard way. Array skroonk's Avatar
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    I haven't studied the HHI so I can't refute its effectiveness but, from the media trend we've JUST seen where we were told that the Earth's supply of oil is running dry, to us having an "abundance of oil... we haven't tapped the surface of the Earth's reserves" I find it hard to believe that the prices we see are fair. I didn't see, or hear, of a single article that rebutted the first case but here we are today with a supposed "abundance" of oil. How are we to know the truth? Oil companies could very well tell us that there is a shortage just to raise prices and there's nothing we can do about it. Frankly, I don't trust what I hear from organizations that control such a monopoly; whether it’s based off of a medium (HHI) or not. With oil driving the government/economy/life as much as it is, I'm not surprised that collusion has not yet been proven. Anybody willing to research such a thing is probably getting ground up and put into 87 octane .
    Last edited by skroonk; 10-04-2006 at 06:58 PM.
    WLF
    Being shot out of a cannon will always be better than being squeezed out of a tube ~ Hunter S Thompson.
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  13. #13
    Vindicated Array JamieJames's Avatar
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    sigh.. oil prices are set by buyers and sellers. In this case right now, the buyers who are REALLY setting the prices are investors (mostly hedge funds) but basically collectively the pool of investors who loaded up on oil futures contracts.

    Refiners buy oil and are forced to pay the prevailing rates. They then process the oil into gasoline and other byproducts. There is a cost obviously for that process. They sell the gasoline to either wholesalers or their own gas stations (for a slight profit) and the gas stations then sell it for razor thin profits.

    there is no collusion, gas prices are high because oil prices are high. Gas prices on the west coast have been stickier than other parts of the country because the market participants are forced to pay higher prices due to a lower than desired but still acceptable level of inventories.
    "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."

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  14. #14
    Registered User Array Commuter Boy's Avatar
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    Quote Originally Posted by doug View Post
    can i go buy another gas guzzler yet?
    Sure. You interested in my Suburban?

  15. #15
    I like traffic cones :S Array made Man's Avatar
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    acceptable levles of inventory? We have bloody Alberta right here with enough crap in it to power Canada for a long time.
    "Honda = Boring, Suzuki = Wannabes, Yamaha = Poser, Ducati = Overated, BMW = Compensating, Aprilia = Insecure, Buell = BCIT business... go faKOffee." - PUREVIL

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