Morning Update Feb 21, 2020

First, sorry for late post. I’m with my family today and I must keep this short. Plus I’m typing from my phone.

Read this artcle, it will not take long.

https://www.bloomberg.com/news/articles/2020-02-20/lng-buyer-cancels-cargo-from-biggest-u-s-exporter-amid-glut?utm_source=url_link

Haha, i was looking for the link button in my editor and was wondering what “more” was. It’s that bar that says “read more”. Ok, moving on.

The article talks about just two cancellations, as two loads i believe. I skimmed the article. “Spanish utility owner Naturgy Energy Group SA has decided not to take delivery of two shipments from Cheniere, according to people with direct knowledge of the matter.” It is unclear how much gas a shipment is, but the effects will be clear as we watch infeed gas flows to the export facilties.

I don’t need to go on about the importance of this article, I’ve preached it enough. But what does this mean now that it gets brought into the spotlight.

It doesn’t mean that LNG will just stop. It’s like a bucket with a hole in the bottom and we fill it from the top. If we stop filling completely, the bucket will run dry. If we fill the bucket too fast, it overflows. So flow may slow for now. The LNG market had already been showing signs of this with falling prices. Just like with NG prices and storage, it will take 6 months or longer for all the players in the market to adjust enough to even stabilize the market. It could take much longer because of the dynamic of LNG. It is easier for Cheniere Energy because they get paid regardless. Qatar has put the brakes on a export facility already, and they can probably turn a profit more easily than anyone in the US. This should show the seriousness of how the market is being perceived right now. They must believe prices/demand will remain low for a while. It has got to be a major challenge to producers to procure contracts with different clients globally, when globally the consumers have so many to choose from. Also gas is not like oil, methane is of one grade, the is no sour or sweet.

My mind is going in circles. The market… So we gotta fill the bucket at a rate it cannot be overfilled. There are 15 different people filling the bucket, and 25 different holes in the buckets. Who cuts back, and who is going to consume more? Who the hell knows, this what i hate about oil! Too much drama. As for the immediate. I’m going to assume these cancellations to Naturgy Energy Group were already destined to happen, and coronavirus is an excuse to escape paying up the fee to Cheniere. I’m also assuming that total US flows may not get hit so much as 20% even from the virus, because demand areas still need the gas, just not so much and they cant so easily build storage tanks like for oil. It’s the shock of this occurring that will pull prices of NG lower (probably for longer). This shock will eventually wear off, but the oversupply will still exist. The additional LNG export capacity that will be added this year may not be well received, it has yet to be seen. Domestic natgas producers do what they always do, produce as much as possible until it bites them in the butt. Because domestic producers only had their eye one how much gas they would be supplying to export facilities, they didn’t keep in mind those facilities aren’t guaranteed to take 100% of their NG consumption capabilities. I would imagine there are no take or pay agreements amidst NG producers and LNG exporters; both sides are left with the responsibility to protect their companies with a hedge of some kind. I mentioned 6 months to stabilize. I really have no idea. This is a new dynamic, one that is not easily traceable.

Just know it will have a negative impact on NG pricing for a while. Big players probably saw this coming much further out than I. A year from now, this will be the norm, following the global LNG market. Production will most likely take the brunt of this for domestic NG prices to stabilize. Power burn will create new highs again this year. And lastly, this should play into skipping along bottom for longer, plan on short term long sided trades. Quite possible NG is headed for new lows with each new article of news about any stalling of LNG.

I’ve written way too much.

I’ll hang on to my 50% UNG in case I’m getting to far ahead of myself. I will also be waiting for fresh lows to add to my position. Good luck and Patience!

Oldinvestor