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Message
1
Posted on 1/27/12 at 8:12 am to TheHiddenFlask
quote:
Not even an ETF broski.
I meant to say fund. Thanks broski.
Posted on 1/27/12 at 9:35 am to TigerBite
quote:
I meant to say fund. Thanks broski.
Not a fund either, BroMontana.
Posted on 1/27/12 at 10:44 am to TheHiddenFlask
quote:
Not a fund either, BroMontana.
Thanks Broseph. The point I was trying to make is that the ETS that is named United States Natural Gas Fund is structured to fail based on the roll component. That coupled with the fact that NG is fundamentally broken at the moment leads me to believe that it is a bad investment. All IMO regardless of thread pissing matches. I don't post much, and now I am again reminded why.
Posted on 1/27/12 at 11:00 am to TigerBite
quote:
All IMO regardless of thread pissing matches. I don't post much, and now I am again reminded why.
You're way too sensitive. Maybe the reason that you don't like posting is because you post half cocked statements without much explanation (see: scoop)
My natural gas bet is pretty short term in nature, so even a negative roll yield (assuming perpetual contango) is not a big concern to me.
Your assumption that the roll yield will always be negative assumes that backwardation will never occur, is this because you are incredibly familiar with NG markets or is it because if I am right about them going up, there is an inherent implication of contango?
quote:
That coupled with the fact that NG is fundamentally broken at the moment leads me to believe that it is a bad investment.
Waiting to buy something until some good news comes out is not how you make money. You have to put your neck out when things are at their worst.
Posted on 1/27/12 at 11:23 am to TheHiddenFlask
quote:
Your assumption that the roll yield will always be negative assumes that backwardation will never occur, is this because you are incredibly familiar with NG markets or is it because if I am right about them going up, there is an inherent implication of contango?
I sell crude and NG. There are no absolutes and I won't speak in them. Long-term, UNG is set to fail under the current structure. As a trade, it can be a good short-term investment, especially if backwardation does occur. The problem is that since the last significant spike in NG, and thus UNG, NG has completely decoupled from crude (another half-cocked statement).
My comments may be "half-cocked" without me fully explaining everything. I don't have the time or need to fully explain everything. I just stated that I don't think it's a good investment IMO. Generally speaking, when I say "investment", I mean long-term.
Posted on 1/27/12 at 11:24 am to TheHiddenFlask
quote:
You have to put your neck out when things are at their worst.
And I don't believe things are at their worst, so I say wait.
Posted on 1/27/12 at 11:36 am to TigerBite
Why not just sell futures and avoid the tracking error altogether if the idea is to be short NG futures?
Posted on 1/27/12 at 12:37 pm to TigerBite
quote:
I sell crude and NG. There are no absolutes and I won't speak in them. Long-term, UNG is set to fail under the current structure. As a trade, it can be a good short-term investment, especially if backwardation does occur. The problem is that since the last significant spike in NG, and thus UNG, NG has completely decoupled from crude (another half-cocked statement).
My comments may be "half-cocked" without me fully explaining everything. I don't have the time or need to fully explain everything. I just stated that I don't think it's a good investment IMO. Generally speaking, when I say "investment", I mean long-term.
Posted on 1/27/12 at 1:21 pm to kfizzle85
quote:
Why not just sell futures and avoid the tracking error altogether if the idea is to be short NG futures?
You could certainly do that, but then you have to identify a timeframe. I was sort of making a joke when I said go short UNG, but wasn't. The history of the stock says do it indefinitely, but it can't go negative, so returns will be limited.
I'm not exactly sure how I'd play NG right now. I just think we'll see a one-handle this year. NG will recover though and getting ahead of it is obviously the way to make dough as Hidden Flask stated. I'm thinking more Oct./Nov. timeframe.
Posted on 1/27/12 at 1:56 pm to TigerBite
I would just wonder about the correlation. I ran a regression versus the HH spot and while it holds close to 1 for long periods of time, there's also big chunks of time where it falls out of correlation, even to the point where it was negative during the end of 2009 beginning of 2010. Without having done any more research I'd guess that was related to contango/backwardation situations. How much lower are you anticipating natty getting? I have no number I'm just curious what you're expectations are, or since you work in it, what you gather the real market's expectations are.
Posted on 1/27/12 at 3:35 pm to kfizzle85
quote:
Without having done any more research I'd guess that was related to contango/backwardation situations.
When the spot goes up, UNG gains money from the underlying, but loses on the roll yield.
When magnitude of roll yield > magnitude of price change (usually in massively volatile markets), the correlation will go negative, if my very narrow understanding of the subject.
Posted on 1/27/12 at 8:28 pm to kfizzle85
quote:
How much lower are you anticipating natty getting? I have no number I'm just curious what you're expectations are, or since you work in it, what you gather the real market's expectations are.
Without looking at technicals (haven't looked at after NG blew through long-term support last week), I would say $1.70-$1.90. I wouldn't anticipate this until late summer/early fall though....but I wouldn't rule out April. While this winter has been terrible for demand, it will show up at some point giving NG a bounce. The problem is that without a ridiculously hot summer, or world turmoil driving crude into the 30s again, there will be record storage for gas in the fall. There could be some other factors at play like fracing regulation or say a direct hit on Houston Ship Channel by a hurricane, but barring something crazy, I just can't see supply decreasing greatly.
I'd keep an eye on the natural gas rig count, NG storage, and Haynesville and Barnett decline, but I just think we're too oversupplied at this point with Eagle Ford, Utica, and Marcellus being undeveloped or under-developed plays.
Last time NG and crude tanked, the industry expected a ton of consolidation and it never happened due to foreign investment. It could happen this time with some crude-heavy companies looking to get into NG cheaply.
To answer your question about real market expectations, I think they are low 2s to low 3s. All the analysts and firms are slashing gas expectations for the next two years. Just keep an eye on Goldman. When they start calling for $1 natural gas or start slashing estimates, go long.
Posted on 1/27/12 at 9:51 pm to TigerBite
Personally could care less about technicals. Haynesville and Barnett are obviously looking at serious production declines, if for no other reason the CHK pulling back so hard. I was under the impression that EF was liquid heavy. I'm not sure about industry wide, but I know one of the companies I've been researching has pretty much decided to just got Marcellus and nowhere else; I belive that's what CHK announced as well. Although I agree with your general premise, it appears that oversupply is inevitable for the near term future. I know Simmons is predicting a bottom around September, I'd personally trust them a lot more than GS. I figured you were on the operating side, not the finance side, that's more of what I was asking about in terms of the real market. I know what sell side research is suggesting.
Posted on 1/27/12 at 10:17 pm to kfizzle85
I work for a producer, so I am on the operating side. NG is priced close to whatever basis you are selling on less transportation and fuel less some sort of discount, generally speaking.
EF has 3 windows: the oil window, the liquids window, and the dry gas window. We're in the oil window. The boundaries of each have yet to be fully determined. The liquids window will still produce a great deal of associated gas. The oil window less, but will produce some nuisance gas (infrastructure is getting there). You poke enough holes and that nuisance gas turns into real revenue.
Marcellus is dangerous in my opinion. The basis that everyone was chasing has been crushed. It will only be there with extreme cold or extreme heat in the northeast. It has the second lowest cost basis domestically, but we will test that at these levels. Ethane is also an issue in Marcellus, and processing in general is a problem. E&Ps went from wanting liquids rich to dry gas. Now I'm not so sure.
As for technicals, I think it would be a mistake to ignore them. They do have a place in the market, especially computer trading. Fundamentals, sentiment, and technicals are all at play and IMO you better not ignore any one of them.
CHK has some Marcellus, but they're banking on the Utica which is liquids rich and oily and has more outlets for both.
I'm not sure if I actually addressed your concerns or questions, but if you have any other ones, I'd be happy to address them. Maybe I'm not understanding the question.
EF has 3 windows: the oil window, the liquids window, and the dry gas window. We're in the oil window. The boundaries of each have yet to be fully determined. The liquids window will still produce a great deal of associated gas. The oil window less, but will produce some nuisance gas (infrastructure is getting there). You poke enough holes and that nuisance gas turns into real revenue.
Marcellus is dangerous in my opinion. The basis that everyone was chasing has been crushed. It will only be there with extreme cold or extreme heat in the northeast. It has the second lowest cost basis domestically, but we will test that at these levels. Ethane is also an issue in Marcellus, and processing in general is a problem. E&Ps went from wanting liquids rich to dry gas. Now I'm not so sure.
As for technicals, I think it would be a mistake to ignore them. They do have a place in the market, especially computer trading. Fundamentals, sentiment, and technicals are all at play and IMO you better not ignore any one of them.
CHK has some Marcellus, but they're banking on the Utica which is liquids rich and oily and has more outlets for both.
I'm not sure if I actually addressed your concerns or questions, but if you have any other ones, I'd be happy to address them. Maybe I'm not understanding the question.
This post was edited on 1/28/12 at 10:03 am
Posted on 1/28/12 at 12:45 am to TigerBite
Good points all around, and I tend to agree the direction of them - its very difficult to be constructive on gas right now.
You guys have touched on most of the macro issues so I'll leave those alone. The thing that I think is interesting and worth paying attention to going forward is where rigs that are being moved from dry gas plays end up. Between 17-25% of the current domestic gas stack is associated gas - gas produced as the by product of liquids focused drilling- and represents ~35% of total domestic gas growth going forward. Assuming WTI stays above $70/bbl, this gas is part of the permanent supply picture since the liquids cash flows subsidies the economics of the gas production. The really scary part is how much associated production comes out of basins with sub ~$50/bbl (assuming 20:1 gas/oil) break-even economics (Eagle Ford wet gas/oil window, Bakken Sanish/Three Forks, Niorbrara Hz, MS Lime Hz, Utica Point Pleasant etc..). So you basically have ~25% of domestic gas supply that is price inelastic barring an collapse of WTI fundamentals.
CHK is repositioning 22 dry gas rigs from the Barnett, Haynesville and NE PA Marcellus to liquids focused plays (good job CHK, admitting you have a problem is always step one!) but given the presence associated gas, you are in fact only laying down 75% of the announced number. The 0.5 Bcf/d of curtailment means nothing as that comes back on-stream as soon as they can hit a ~10% IRR on the well.
For the gas picture to get materially better in the next 2-3 years, we need to see significant numbers of dry gas rigs being laid down (175+ in 2012 I think).
You guys have touched on most of the macro issues so I'll leave those alone. The thing that I think is interesting and worth paying attention to going forward is where rigs that are being moved from dry gas plays end up. Between 17-25% of the current domestic gas stack is associated gas - gas produced as the by product of liquids focused drilling- and represents ~35% of total domestic gas growth going forward. Assuming WTI stays above $70/bbl, this gas is part of the permanent supply picture since the liquids cash flows subsidies the economics of the gas production. The really scary part is how much associated production comes out of basins with sub ~$50/bbl (assuming 20:1 gas/oil) break-even economics (Eagle Ford wet gas/oil window, Bakken Sanish/Three Forks, Niorbrara Hz, MS Lime Hz, Utica Point Pleasant etc..). So you basically have ~25% of domestic gas supply that is price inelastic barring an collapse of WTI fundamentals.
CHK is repositioning 22 dry gas rigs from the Barnett, Haynesville and NE PA Marcellus to liquids focused plays (good job CHK, admitting you have a problem is always step one!) but given the presence associated gas, you are in fact only laying down 75% of the announced number. The 0.5 Bcf/d of curtailment means nothing as that comes back on-stream as soon as they can hit a ~10% IRR on the well.
For the gas picture to get materially better in the next 2-3 years, we need to see significant numbers of dry gas rigs being laid down (175+ in 2012 I think).
Posted on 1/28/12 at 3:33 pm to TigerBite
Wasn't really a question,just rambling. Good stuff all around.
Posted on 1/29/12 at 12:43 am to Athanatos
Yeah Ath I didn't get any of that but I'm sure at least some of what you said in there is true.
Posted on 1/29/12 at 8:51 am to RemouladeSawce
TigerBite and Athanatos - That's some very enlightening analysis.
As a reservoir engineer, that makes me even less bullish on the some of the gas fields that I work. Luckily I work some oily fields too.
What are your roles in the industry?
As a reservoir engineer, that makes me even less bullish on the some of the gas fields that I work. Luckily I work some oily fields too.
What are your roles in the industry?
Posted on 1/29/12 at 9:32 am to Bayou Tiger
I'm on the finance side of the equation
This post was edited on 1/29/12 at 9:42 am
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