Germany Banning Russian Oil Imports by End 2022

Germany has announced a ban on Russian oil imports, halving demand by summer and going to zero by winter.  

One quarter of Germany's oil imports currently come from Russia.  

Natural gas (40% of Germany's needs come from Russia) will be phased out post the oil ban. The 9.5 billion euro pipeline, Nord Stream 2, between Russia and Germany, will now no longer be used having been suspended 2 days before the Russian invastion of Ukraine on February 24th, by German Chancellor Olaf Scholz (successor of Angela Merkel). 

Importing LNG is one option but has been tricky due to the lack of regasification facilities in Germany. The leasing of FSRUs in the short term (Floating Storage and Regasification Units) is one option being explored, and Wilhelmshaven, coastal town facing the North Sea, has been identified as one location.

Employers and unions have resisted an immediate energy import ban due to loss of jobs. The UK will also phase out Russian oil imports by the end of 2022. 

Separately, the EU announced a ban on Russian coal imports on 7 April which will take effect in August (Russia is Europe's largest supplier of thermal coal - which is used in coal-fired power stations).

US Natural Gas Exporters to Meet German Buyers

Meetings will take place in Berlin as Europe attempts to wean itself off Russian gas. Germany in particular depends on Russia for about 50% of its gas supplies making the American option important. LNG terminal developers in Germany are hoping this will help accelerate planning approvals.

UK Cautious on Onshore Fracking

The UK Government (Department for Business, Energy and Industrial Strategy) has provided guidance on hydraulic fracturing, or fracking (13 January 2017).

This technique was already used in the UK in the late 1970s for North Sea offshore projects but recent interest has focused on onshore applications. It involves fracturing rock by applying liquid at high pressure into a wellbore, creating cracks that help natural gas and petroleum to flow more freely.

As background to UK gas demand - and the potential benefits of onshore fracking - consider the UK's sources if energy in 2015.

One third of supply came from natural gas, one third from oil and the rest from other sources (coal, nuclear and renewables). Natural gas is imported via pipelines and ships (from Qatar, Algeria, Nigeria and Trinidad and Tobago).

The prediction is that most of the UK's natural gas will have to be imported come 2030. Fracking could therefore provide a valuable source of domestic supply. The British Geologic Survey estimates 1300 t.c.f. of gas in shale formations in Northern England.

The Royal Society also has published guidance on fracking.

Commercially, Cuadrilla has been involved in attempts to start fracking in the UK. They are partly funded by Riverstone Holdings LLC, founded by former staffers in Goldman's Energy and Power Group.

Gazprom Approves $320m Financing for Turkish Natural Gas Pipeline

Gazprom has approved a three-and-a-half year loan to aid construction of the upcoming Turkish Stream (TurkStream) pipeline. The project was announced on December 2014 by Vladimir Putin on a state visit to Turkey. Turkey is regarded as a strategic bridge for energy between Central Asia and Europe. The pipeline will go from Russia's Krasnodar region, on the North Eastern edge of the Black Sea, to Turkish Thrace. Geographically, the Black sea has multiple countries on its edges, including Russia, Turkey and Ukraine, and Bulgaria, Romania and Georgia.

How much known reserves of natural gas are there?

At the end of 2013, the known reserves of natural gas was 6557 trillion cubic feet. The greatest portion of these reserves are in the Middle East, with 2835 trillion cubic feet, the largest reserves being in Iran. Production, on the other hand, is measured in billion cubic feet.

Argentinia's YPF Agrees to Buy Bulk of LNG from BP

YPF will buy most of its LNG cargoes for 2014-2015 from BP, amounting to 5.57 million tonnes. The LNG will deliver to the Bahia Blanca import terminal, near Buenos Aires, the largest province in Argentina. For 2014, Argentina will pay around $15 per mmBtu.

How much gas did the UK import in 1H2013 and where did it come from?

The UK imported a record 1tcf of gas in the first half of 2013 which was 9.3 percent above the same period the previous year. A key pipeline was closed in late March causing a price spike. 81% of imports come via pipelines from Norway and Holland, with just under 20% coming in the form of LNG primarily from Qatar and a small volume from Algeria.

In Algeria, the national oil and gas company, Sonatrach, dominates the hydrocarbon sector. Crude oil production in Algeria averaged 1.25 million bpd in 2012. (This is still less than the peak production in the UK which was 2.5 million bpd in 1986).

The Latest Take on the WTI Curve (New Focus on Q13)

The "near-term" contango in crude (specifically WTI) extends out to the "Q13" futures contract a.k.a. August 2013 (but which, as we know, expires in July), which peaks out at just over 94 and a half dollars. This contrasts with 94 dollars and 30 cents on the front month. After that, it's pure backwardation. Brent remains on pure backwardation.

Oil futures curves have relatively simple shapes. It's a bit of a different story in the gas market. For example, we might consider the "broad contango" in the price of NYMEX Natural Gas.

What we see is actually seasonality in the futures prices, reflecting seasonal demand, underpinned by a  general upward trend. Mini-peaks are observed for delivery for Jan 14, Jan15  and Jan16, with the biggest jumps happening from November to December. After January prices drop off gradually, and then suddenly from March to April. Gas prices are rather weather-dependent. Current front month (June 13) NYMEX is around $4 and 7 cents per mmBtu, with an increasing general trend, with $4 and 37 cents for Dec13 (creating a 30 cent contango within the six months from July to December).

Commodities Guaranteed Supply Contracts Protected from High Frequency Traders

Will high-frequency trading (oft-termed "HFT" amongst journalistic heavies) take the commodities world by storm, is a question which some would say has already been answered. 

Whilst HFT may have gripped the exchange traded commodities gladiatorial arena (and earned permanent recognition in financial literature such as The Quants), one area where it has not penetrated is the specialized realm of OTC commodities derivatives contracts. 

The OTC arena is one of specialized vocabulary and distinctive concepts, shrouded in mystical terms presently unbeknownst to the HFT community.

To start, we will look at the contracts known as take-or-pay, variable base-load factor or swing contracts, commonplace in the natural gas market. However, these are relatively unknown outside of commodities (specifically natural gas and soon-to-be electricity markets). Just ask a money market trader what a swing contract is and chances you will get an answer that does not correlate with the natural gas definition. Mention "variable base-load" and confusion and annoyance will undoubtedly result, or puzzled nods of approbation as images of music systems are conjured up.

The simple explanation of a swing contract is one in which one of two parties is guaranteed a supply of a particular commodity at fixed times in the futures for a certain price, called the strike, K. The holder is thus protected from fluctuations in the commodity during the period until expiration. The holder gets complete price protection if K is fixed at the start, and part-protection if K depends on spot price at the start of each period - making it like a strip of forward contracts. 

59 orders wipe out $58bn of market value from Nifty

One Broker Broke the Market

Friday's debacle on the Nifty (aka Nifty 50, India's benchmark free-float market cap index) resulted in a brief erasure of $58bn from the National Stock Exchange (drop of 16% in the index value). The culprits, Emkay Global Financial Services Ltd., admitted $126m volume-worth of orders triggered the problem, which fired off circuit breakers on the National Stock Exchange (wrong data entry on a basket sell order).

Protected by the Circuit Breakers

The NSX (whose corporate HQ is in Bandra, Mumbai) triggers circuit breakers when there is a 10% or larger move (check out this guide to Asia circuit breakers).

Whose in the Nifty Fifty

Stocks in the "Nifty 50" include Tata Steel, GAIL (India) Ltd, Axis Bank Ltd., ICICI Bank Ltd and Jaiprakash Associates.

Many of these stocks (Tata Steel, for example) are also part of the Sensex (or BSE 30) which are the 30 largest stocks on the Bombay Stock Exchange.

Gazprom latest to Axe Large Capital-Intensive Projects

First it was BHP Billiton's announcement that they were downsizing the Olympic Dam project. Now Gazprom is the latest firm to cut capital spending as it dumps it Shtokman gas field project in the Arctic due to excessive costs. Shtokman contains nearly four trillion cubic metres of gas making it one of the world's largest natural gas fields. The head of Gazprom's production, Mr Cherepanov, said the project was too expensive "for the time being". Total and Statoil were partners in the project (Gazprom had selected them as partners), with 25% and 24% stakes respectively. The oversupply from the US shale gas boom has changed the dynamics of gas exploration across the industry. Gazprom trades on a number of exchanges including the Moscow Exchange, LSE and Berlin and Frankfurt Stock Exchanges and is Russia's largest listed company. The news comes just as Shell has gained permission to drill for oil in the Arctic off the cost of Alaska.

Miner BHP Billiton postpones Olympic Dam Mega-Project

The Olympic Dam was supposed to be a $30bn project. The idea was to create the world's largest copper and uranium mine, in the heart of the Outback in South Australia. Now this has been put on the back-burner and what's more, no new projects are supposed to be approved till June 2013. This decision has already led to a cut in BHP's workforce in Adelaide, a coastal town in South Australia. Part of this aversion to capital spending is the 35% drop in profits this year although some news channels suggest mining taxes may have played a factor.

It is worthwhile considering the Board of Directors of BHP Billiton. Among them is Lebanese-born Jacques Nasser, the former Chief Executive of Ford Motor Company from 1998 to 2001, who received a $17m golden handshake when he left in October 2001. Marius Kloppers is the Chief Executive of BHP and holds a PhD from MIT in Materials Science and an MBA from INSEAD. Before becoming CEO, Marius circulated through various roles at BHP including Chief Marketing Officer and Chief Commercial Officer.

BHP is involved in onshore gas development of shale resources in the United States and affected by gas prices. In 2012 it has spent just over $3bn developing these resources. Over half its drilling activity takes place in Eagle Ford. In 2013 it expects to spend $4bn further developing these assets. Chesapeake (NYSE:CHK) is especially active in Eagle Ford with 550,000 acres (although most of the production is oil rather than gas). Exxon, ConocoPhilips and Occidental Petroleum have also entered Eagle Ford.

BHP is also undertaking appraisal drilling in the 440,000 acres of the Permian basin (part of Western Texas and South Eastern New Mexico) to evaluate its potential for producing shale liquids. Estimated output is currently around 100Mboe.

This gives us some idea of costs, but what about cash flow? Here are some findings from Graham Kerr's presentation for FY2012. EBIT margin was 39% - this means roughly 39% of revenues weren't consumed in expenses. H2 net operating cash flow was $12bn, slightly lower than in H1.

The history of BHP is a fascinating one. It was formed from the merger of BHP (Broken Hill Proprietary) and Billiton, originally a tin mine on the Indonesian island of Beilitung. Later Billiton expanded into bauxite, first on Bintan and then later in Suriname, leading a largely independent life until its acquisition by Royal Dutch Shell in 1970. When BHP and Billiton merged in 2001 it was dual-listed on both the LSE (BLT) and Australian stock exchanges (BHP) including ETOs.

What is the market capitalisation of BHP? That depends on what exchange you are looking at. Its UK listing is worth about £38bn (Aug 2012).

What about ADV of BHP? On the LSE, it's about 10,000, which means monthly will be roughly 300k.

Nat Gas trading around $3.87

Price is per MMBTU (per million BRITISH thermal units - the MM being a legacy of Roman times when M denoted 1,000. Hence MM is one million or one thousand times one thousand). Look how Natgas futures on NYMEX are doing here.  ONE BTU is roughly 1,055 Joules, so 1 MMBTU must be a BILLION JOULES.

Recap question: When is a million equal to one billion?  Answer: when converting MMBTU into Joules. 1 MMBTU (million BTUs) is one billion Joules.

Standard contract size for Henry Hub natural gas is 10,000 MMBtu.

We can think of energy also in terms of light. A 100 Watt light bulb consumes 100 Joules/second.  in one minute, consume 6,000 Joules, roughly 6 BRITISH THERMAL UNITS.

NatGas 8.1% Flash Crash in Futures on 8 June

Could electronic algos be to blame for clsoing the New York Mercantile Exchange floor for more than five hours when late Wednesday, when Nymex July natural gas dropped 39 cents, or 8.1 per cent, to $4.510 per million British thermal units?? After a few seconds, it bounced back up but the damage was done - anomalous price move registered.

In the US natgas has risen 15 per cent in the past month, nearing a one-year high of $5 per mBtu, as people switch on their air-cons in the hot weather and power plant masters boost output accordingly.