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Can someone explain why the rumor of cracked pipes and delayed restart of a terminal would cause the futures price to go down? I would think that news of a sup

by crmd 4y ago

Can someone explain why the rumor of cracked pipes and delayed restart of a terminal would cause the futures price to go down? I would think that news of a supply constraint would cause the price to go up. TIA

deniz_tekalp 4y ago
US has a large supply of natural gas and domestic prices are cheap. LNG prices are very high globally. The price discrepancy exists because there is not enough LNG export capacity. This is a very large LNG export facility. When it gets back on global LNG supply should increase and prices should fall. Domestic supply should decrease and prices should increase.
thwayunion 4y ago
The terminal is for exports from the US (particularly to Europe), and the futures contracts are on US gas prices. Europe desperately needs gas this winter. Markets are pricing in the assumption that the US producers will get great prices from European consumers this winter. If US gas can't get to Europe then the US can't sell that gas at high prices in Europe. Also, additionally, the domestic market will be flooded in supply.
- twawaaay 4y ago
  Isn't it true that the price for gas in Europe is very inelastic at the moment (meaning they will pay pretty much any price to get it) and so any shortage of it will cause dramatic price increase? Also, Europe can't easily switch to another source of gas because they have maxed out everything they could. This is basically the reason why OPEC restricts oil production, it is just here the same is happening unintentionally by LNG terminal malfunction. -- Besides, looking at that graph it looks that the "plunge" is on the order of normal price change noise. Just look at the history from before the "plunge". Clickbait.
  - CamperBob2 4y ago
    Besides, looking at that graph it looks that the "plunge" is on the order of normal price change noise. Just look at the history from before the "plunge". Clickbait. Clickbait is literally the business model at Bloomberg: https://www.businessinsider.com/bloomberg-reporters-compensation-2013-12 https://www.businessinsider.com/bloomberg-reporters-compensa...
  - hn_throwaway_99 4y ago
    Not sure if your post is trying to contradict the post you are replying to, which made the very good point that what plunged are US gas futures. I assume that yes, this would be very bad news for European gas consumers.
    - jopsen 4y ago
      And electricity consumers, since prices usually trend gas prices. And anyone buys exports manufactured in Europe...
  - deleted 4y ago
    [deleted]
  - DelightOne 4y ago
    > meaning they will pay pretty much any price to get it They would buy it at current market rate, which is dropping atm. That's why LNG tankers wait at the coast for a hopefully future higher price.
    - staticautomatic 4y ago
      Is this not diminished by the buyers hedging?
      - jacobr1 4y ago
        you still need counterparties
    - benj111 4y ago
      Aren't they camped out because Europe's storage is maxed out and the winter so far is mild so it isn't using as much gas?
      - arlcode 4y ago
        Yes the heating period ist just now starting as it gets colder. That's crazy late. In addition Germany for example sees a huge reduction of consumer usage even after accounting for outside temperature. People are changing their habits in anticipation of increased gas bills (and also nobody likes being blackmailed by Russia). In April May it will become clear how much was used and what it did cost extra (since most renters get their yearly balance around that time)
        benj111 4y ago
        >Yes the heating period ist just now starting as it gets colder We broke records around the UK yesterday for the warmest November day so still not really starting here. Were also breaking records for wind generation.
  - dylan604 4y ago
    >it is just here the same is happening unintentionally by LNG terminal malfunction. with all that is going on in the world, it would be really easy to give into the conspiracy aspect and say intentional malfunction. we've already seen what has been agreed upon as sabotage to underwater pipelines. why not a terminal like this as well? <grabs the popcorn> Edit: I'm in no way pushing this as a thing. Just speculating from past experience in the inner sanctum of groups that would absolutely push an idea like this. Just because we as a forum might not think anything like this would be possible, you absolutely know there are those that will
    - themitigating 4y ago
      You've had past experience involving large conspiracies?
      - dylan604 4y ago
        oh boy, where to begin? very long story short, yes. yes I have.
    - twawaaay 4y ago
      I think US needs its partners more than ever and doing things like this on purpose is bound at some point to backfire on them spectacularly. I think rational US government would not do something like this on purpose because there just isn't a whole lot to gain but boy, there is a lot to loose.
      - dylan604 4y ago
        ahh, you seem to think that a gov't is the only thing that could do something like this. what if the gas company itself did this? a true conspiracy aficionado would follow the money and ask who benefits the most. hell, a good conspiracy would suggest all of LNG producers got together and chose the specific plant to sabotage so they all benefit. conspiracies are just so much fun! /s
- nimbius 4y ago
  whats interesting to consider is that while russia had no interest in sabotaging their nordstream pipelines, the US absolutely did. conversely russia has great interest in fouling up the gas markets the US relies upon to profit from russias curious energy export misfortunes.
  - pohl 4y ago
    It's an analytical mistake to think in terms of Russia's interests. The correct perspective is what might be in Vladimir Putin's interests. He's stuck in a quagmire and trying not to be deposed.
  - spywaregorilla 4y ago
    Putin has plenty of interest in sabotaging the pipelines. If the pipelines are destroyed, one cannot kill Putin, take over, and sell gas to europe again to be rich. The US would suffer an incredible risk if it ever came out that they intentionally sabotaged European energy supplies to such a scale.
    - okasaki 4y ago
      What risk? The US says jump and European politicians ask how high...
      - ruggeri 4y ago
        Wasn't Germany building Nordstream 2 against US advice? It doesn't seem like European politicians always do what the US government wants. Does that suggest your model might be wrong or over-simplified?
      - krapp 4y ago
        >The US says jump and European politicians ask how high... I mean, if that were true Julian Assange would be in a bodybag right now, wouldn't he?
        imron 4y ago
- nosianu 4y ago
  > Europe desperately needs gas this winter Yes, but consider this: There's ca. $2bn of LNG waiting on LNG tankers around Europe, with many more ships to come. https://www.aljazeera.com/news/2022/11/6/dozens-of-ships-carrying-lng-lingering-around-europes-coast https://www.aljazeera.com/news/2022/11/6/dozens-of-ships-car... Does not look all that desperate to me any more by this point. The price is higher than before of course, but that is much less of a problem than not having the gas. Besides, isn't that higher price exactly what is needed anyway with climate change looming? About twenty-five years ago the Greens in Germany wanted 5 DM (it was ca. 1.50 DM at the time) for a liter of gas for that reason.
  - thwayunion 4y ago
    Yes, supply is meeting demand. That's roughly consistent with the (all in all relatively modest) 7.4% price move in us futures, some of which was retraced. If this had happened with less reserve in the system, that price move would've been much higher (and from a much higher base).
nuclearnice3 4y ago
When operational, this facility consumes billions of cubic feet of natural gas [1]. They take gas make it liquid, put it on a boat, ship it. If they have cracked pipes, they are less likely to reopen. Not reopening, not going to consume the gas. Less demand for gas. Price drops. [1] https://www.eia.gov/todayinenergy/detail.php?id=52859 https://www.eia.gov/todayinenergy/detail.php?id=52859
- spywaregorilla 4y ago
  The fact that one is unable to buy gas does not mean demand for gas has fallen.
  - nuclearnice3 4y ago
    The fact that the plant will be unable to buy gas for longer than anticipated should reduce the expected demand for gas. Less demand for gas, lower price for gas. People were pricing gas on some expectation of this plant opening and consuming at some point in the future. If that's pushed back, the price should drop.
    - spywaregorilla 4y ago
      That is not how that works. That would reduce the quantity demanded, not the demand. You're describing a supply decrease, which will raise the price. The mechanic here is the decline of exports to europe making the supply of gas available to us go up, meaning the price for gas in the US will go down.
      - nuclearnice3 4y ago
        Reducing the quantity demanded is reducing the demand. I don't understand how you reduce "quantity demanded" but not "demand." MAybe you can clarify. I am describing a demand decrease. When operational, this plant consumes US gas. It is a demander of gas. If it's staying closed, less demand for US gas. > The mechanic here is the decline of exports to europe making the supply of gas available to us go up, meaning the price for gas in the US will go down. This is correct and equivalent to what I'm saying. Your notion: "If this place doesn't open, less gas is exported to europe, leaving more supply in the US" My notion: "If this place doesn't open, less gas is bought in the US for export to europe, leaving more supply in the US" We're on the same page.
bbryant 4y ago
The futures price is for US. The terminal is for export. So terminal failure pushes more supply into US market.
woranl 4y ago
Freeport buys US natural gas and turns that into LNG for export to Europe. With a plant shutdown, it’s not buying as much natural gas domestically. Hence price in US goes down. Despite still high globally.
teesnee 4y ago
Note the article's wording: "US natural gas futures plunged..." If the US can't export, there is increased domestic supply, causing the futures price to fall. If exports through the terminal resumed, US prices would rise since now global buyers are competing with domestic buyers, and prices between linked markets (e.g. US & EU) would equilibrate slightly. Also important to recognize that EU gas prices are much higher than US prices, so there is large demand for US->EU LNG shipments.
zackees 4y ago
HWR_14 4y ago
Gas storage is fairly limited and near capacity. Production of Gas is incidental to oil drilling, so "keeping it in the ground" would require keeping the more valuable oil in the ground and is unlikely to happen. One sink for it (this terminal) is reduced. Since there is now less demand but a constant supply, prices should go down.
- wumpus 4y ago
  > Production of Gas is incidental to oil drilling For some wells, yes. For others, no.

by crmd 4y ago

deniz_tekalp 4y ago

US has a large supply of natural gas and domestic prices are cheap. LNG prices are very high globally. The price discrepancy exists because there is not enough LNG export capacity. This is a very large LNG export facility. When it gets back on global LNG supply should increase and prices should fall. Domestic supply should decrease and prices should increase.

thwayunion 4y ago

The terminal is for exports from the US (particularly to Europe), and the futures contracts are on US gas prices. Europe desperately needs gas this winter. Markets are pricing in the assumption that the US producers will get great prices from European consumers this winter. If US gas can't get to Europe then the US can't sell that gas at high prices in Europe. Also, additionally, the domestic market will be flooded in supply.

twawaaay 4y ago
Isn't it true that the price for gas in Europe is very inelastic at the moment (meaning they will pay pretty much any price to get it) and so any shortage of it will cause dramatic price increase? Also, Europe can't easily switch to another source of gas because they have maxed out everything they could. This is basically the reason why OPEC restricts oil production, it is just here the same is happening unintentionally by LNG terminal malfunction. -- Besides, looking at that graph it looks that the "plunge" is on the order of normal price change noise. Just look at the history from before the "plunge". Clickbait.
- CamperBob2 4y ago
  Besides, looking at that graph it looks that the "plunge" is on the order of normal price change noise. Just look at the history from before the "plunge". Clickbait. Clickbait is literally the business model at Bloomberg: https://www.businessinsider.com/bloomberg-reporters-compensation-2013-12 https://www.businessinsider.com/bloomberg-reporters-compensa...
- hn_throwaway_99 4y ago
  Not sure if your post is trying to contradict the post you are replying to, which made the very good point that what plunged are US gas futures. I assume that yes, this would be very bad news for European gas consumers.
  - jopsen 4y ago
    And electricity consumers, since prices usually trend gas prices. And anyone buys exports manufactured in Europe...
- deleted 4y ago
  [deleted]
- DelightOne 4y ago
  > meaning they will pay pretty much any price to get it They would buy it at current market rate, which is dropping atm. That's why LNG tankers wait at the coast for a hopefully future higher price.
  - staticautomatic 4y ago
    Is this not diminished by the buyers hedging?
    - jacobr1 4y ago
      you still need counterparties
  - benj111 4y ago
    Aren't they camped out because Europe's storage is maxed out and the winter so far is mild so it isn't using as much gas?
    - arlcode 4y ago
      Yes the heating period ist just now starting as it gets colder. That's crazy late. In addition Germany for example sees a huge reduction of consumer usage even after accounting for outside temperature. People are changing their habits in anticipation of increased gas bills (and also nobody likes being blackmailed by Russia). In April May it will become clear how much was used and what it did cost extra (since most renters get their yearly balance around that time)
      - benj111 4y ago
        >Yes the heating period ist just now starting as it gets colder We broke records around the UK yesterday for the warmest November day so still not really starting here. Were also breaking records for wind generation.
- dylan604 4y ago
  >it is just here the same is happening unintentionally by LNG terminal malfunction. with all that is going on in the world, it would be really easy to give into the conspiracy aspect and say intentional malfunction. we've already seen what has been agreed upon as sabotage to underwater pipelines. why not a terminal like this as well? <grabs the popcorn> Edit: I'm in no way pushing this as a thing. Just speculating from past experience in the inner sanctum of groups that would absolutely push an idea like this. Just because we as a forum might not think anything like this would be possible, you absolutely know there are those that will
  - themitigating 4y ago
    You've had past experience involving large conspiracies?
    - dylan604 4y ago
      oh boy, where to begin? very long story short, yes. yes I have.
  - twawaaay 4y ago
    I think US needs its partners more than ever and doing things like this on purpose is bound at some point to backfire on them spectacularly. I think rational US government would not do something like this on purpose because there just isn't a whole lot to gain but boy, there is a lot to loose.
    - dylan604 4y ago
      ahh, you seem to think that a gov't is the only thing that could do something like this. what if the gas company itself did this? a true conspiracy aficionado would follow the money and ask who benefits the most. hell, a good conspiracy would suggest all of LNG producers got together and chose the specific plant to sabotage so they all benefit. conspiracies are just so much fun! /s
nimbius 4y ago
whats interesting to consider is that while russia had no interest in sabotaging their nordstream pipelines, the US absolutely did. conversely russia has great interest in fouling up the gas markets the US relies upon to profit from russias curious energy export misfortunes.
- pohl 4y ago
  It's an analytical mistake to think in terms of Russia's interests. The correct perspective is what might be in Vladimir Putin's interests. He's stuck in a quagmire and trying not to be deposed.
- spywaregorilla 4y ago
  Putin has plenty of interest in sabotaging the pipelines. If the pipelines are destroyed, one cannot kill Putin, take over, and sell gas to europe again to be rich. The US would suffer an incredible risk if it ever came out that they intentionally sabotaged European energy supplies to such a scale.
  - okasaki 4y ago
    What risk? The US says jump and European politicians ask how high...
    - ruggeri 4y ago
      Wasn't Germany building Nordstream 2 against US advice? It doesn't seem like European politicians always do what the US government wants. Does that suggest your model might be wrong or over-simplified?
    - krapp 4y ago
      >The US says jump and European politicians ask how high... I mean, if that were true Julian Assange would be in a bodybag right now, wouldn't he?
      - imron 4y ago
nosianu 4y ago
> Europe desperately needs gas this winter Yes, but consider this: There's ca. $2bn of LNG waiting on LNG tankers around Europe, with many more ships to come. https://www.aljazeera.com/news/2022/11/6/dozens-of-ships-carrying-lng-lingering-around-europes-coast https://www.aljazeera.com/news/2022/11/6/dozens-of-ships-car... Does not look all that desperate to me any more by this point. The price is higher than before of course, but that is much less of a problem than not having the gas. Besides, isn't that higher price exactly what is needed anyway with climate change looming? About twenty-five years ago the Greens in Germany wanted 5 DM (it was ca. 1.50 DM at the time) for a liter of gas for that reason.
- thwayunion 4y ago
  Yes, supply is meeting demand. That's roughly consistent with the (all in all relatively modest) 7.4% price move in us futures, some of which was retraced. If this had happened with less reserve in the system, that price move would've been much higher (and from a much higher base).

nuclearnice3 4y ago

When operational, this facility consumes billions of cubic feet of natural gas [1]. They take gas make it liquid, put it on a boat, ship it. If they have cracked pipes, they are less likely to reopen. Not reopening, not going to consume the gas. Less demand for gas. Price drops. [1] https://www.eia.gov/todayinenergy/detail.php?id=52859 https://www.eia.gov/todayinenergy/detail.php?id=52859

spywaregorilla 4y ago
The fact that one is unable to buy gas does not mean demand for gas has fallen.
- nuclearnice3 4y ago
  The fact that the plant will be unable to buy gas for longer than anticipated should reduce the expected demand for gas. Less demand for gas, lower price for gas. People were pricing gas on some expectation of this plant opening and consuming at some point in the future. If that's pushed back, the price should drop.
  - spywaregorilla 4y ago
    That is not how that works. That would reduce the quantity demanded, not the demand. You're describing a supply decrease, which will raise the price. The mechanic here is the decline of exports to europe making the supply of gas available to us go up, meaning the price for gas in the US will go down.
    - nuclearnice3 4y ago
      Reducing the quantity demanded is reducing the demand. I don't understand how you reduce "quantity demanded" but not "demand." MAybe you can clarify. I am describing a demand decrease. When operational, this plant consumes US gas. It is a demander of gas. If it's staying closed, less demand for US gas. > The mechanic here is the decline of exports to europe making the supply of gas available to us go up, meaning the price for gas in the US will go down. This is correct and equivalent to what I'm saying. Your notion: "If this place doesn't open, less gas is exported to europe, leaving more supply in the US" My notion: "If this place doesn't open, less gas is bought in the US for export to europe, leaving more supply in the US" We're on the same page.

bbryant 4y ago

The futures price is for US. The terminal is for export. So terminal failure pushes more supply into US market.

woranl 4y ago

Freeport buys US natural gas and turns that into LNG for export to Europe. With a plant shutdown, it’s not buying as much natural gas domestically. Hence price in US goes down. Despite still high globally.

teesnee 4y ago

Note the article's wording: "US natural gas futures plunged..." If the US can't export, there is increased domestic supply, causing the futures price to fall. If exports through the terminal resumed, US prices would rise since now global buyers are competing with domestic buyers, and prices between linked markets (e.g. US & EU) would equilibrate slightly. Also important to recognize that EU gas prices are much higher than US prices, so there is large demand for US->EU LNG shipments.

zackees 4y ago

HWR_14 4y ago

Gas storage is fairly limited and near capacity. Production of Gas is incidental to oil drilling, so "keeping it in the ground" would require keeping the more valuable oil in the ground and is unlikely to happen. One sink for it (this terminal) is reduced. Since there is now less demand but a constant supply, prices should go down.

wumpus 4y ago
> Production of Gas is incidental to oil drilling For some wells, yes. For others, no.