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Gazprom: A Russian Invasion?
Written by Julian Murdoch   
April 13, 2009 1:00 PM EST
Page 1 of 2

 

In a deal we expected to get a bit more press, Gazprom (OTC: OGZPY) and Shell (NYSE: RDS) announced a deal on Thursday that will allow Gazprom to export liquefied natural gas (LNG) to Shell's terminal in Baja California. The gas will then be transported via pipeline to Southern California. From Russia with love.

In this time of depressed U.S. natural gas prices - down 74% to around $3.50 per MMBtu from last July's high of $13.31 per MMBtu - why in the world would Gazprom be making a deal to bring in more supply?

It's all about plans for world domination, eventually.

 

Today's Market

By all accounts, the natural gas market is oversupplied right now. There are currently 1.674 trillion cubic feet of natural gas in inventory. In fact, the recent U.S. EIA Natural Gas Storage Report showed that natural gas supplies rose 20 billion cubic feet while the market had only expected an increase of 14 billion. Needless to say, prices dipped a bit on the news.

 

Natural Gas (NG, NYMEX) Daily

Natural Gas (NG, NYMEX) Daily

 

This even-greater expansion of the gas stocks comes on top of huge highs: The five-year historical average for stocks is only 1.364 TcF (trillion cubic feet), and we're currently sitting on 35% more natural gas than we were just this time last year.

Demand is so low that the number of natural gas rigs currently operating has dropped from 970 the last time we checked in (just last month!) to 790 in the latest report. To put that in perspective, in September 2008, the number of rigs operating topped out at 1,606. Natural gas prices just aren't high enough to make production cost-effective, even at some low-cost sites such as Barnett Shale in North Texas. As Richard Mason, the publisher of The Land Rig Newsletter, put it in the Star Telegram:

 

"Gas needs to be at least $3.50, or even $4 [per 1,000 cubic feet] for it to be economical to drill in the Barnett Shale," Mason said. But some producers have received less than $3 for their gas at major trading hubs, he said.

 

For higher cost producers, it will be a while before drilling activity resumes. "A sustained gas price of about $8 per 1,000 cubic feet is needed to boost drilling activity," Thomas Gardner of Simmons & Co. International stated in the same article. The market hasn't seen sustained prices of that level in quite a while.

 



 

More on this topic (What's this?)
Natural Gas: The Cheapest Commodity Speculation (Contrarian Profits, 5/6/09)
Is Natural Gas As Low As It Can Go? (Blogging the Commodity Bull Market, 4/22/09)
WSJ: US Now Swimming in Natural Gas (Blogging the Commodity Bull Market, 4/30/09)
Natural Gas: Another Chance to Profit As This Commodity Takes a Tumble (Contrarian Profits, 3/31/09)
Read more on Gazprom, Natural Gas at Wikinvest
 
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Comments (1)

 Tuesday, 14 April 2009 9:01 EST - Posted by Mark

 
Great. Just what we need . More outside resourses imported when we have abundant supplies here. WAKE UP AMERICA!! Have we not learned enough by being dependant on crude oil?



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