Standardized parts bringing down production cost of crude oil

deflation into oil consumers countries.
support of growth
turning oil producers and explorers more resilient.


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Nergaard Berg estimates that standardization of sub-sea forgings alone—the massive steel spools used in deepwater drilling—has resulted in a 30 percent reduction in project lead times. Christie, of GE Oil & Gas, also reckons that standardization can lower drilling expenses by an average of 30 percent.

USO not the way to trade oil unless short term

stolen somewhere.

Spot Crude Oil: +26.2%

Crude ETF: -0.1%

see more: roll yield and more roll yield.

"The US Oil Fund (Ticker: USO) holds long positions in West Texas Intermediate crude oil futures contracts, and rolls these contracts forward each month. Like most futures traders, USO buys futures with leverage, putting up a small portion of the money to buy the contracts. The rest of the money is invested in Treasuries, which generates interest income for the fund.
Three factors play a role in determining the performance of USO: 1) changes in the spot price of crude oil, 2) interest income on un-invested cash, and 3) the 'roll yield'. The first two factors are easily understood, but the third factor, 'roll yield' should be examined further in order to determine the extent, if any, to which traders of USO will be surprised by its performance in relation to spot crude oil.
First some background: Oil futures are available for each month of the year, so you can buy a futures contract right now which gives you the right to buy oil in February 2009, March 2009, April 2009, and so on. Currently, the price of oil in February 2009 is less than the price of oil in April 2009, a condition which is referred to as 'contango'. (If the opposite were true, the market for crude oil would be in backwardation.) Most commodity funds, including the US Oil Fund (USO) buy what is called the 'near month' contract and, because they do not want to take physical delivery of the commodity, they sell the current month's contract before it expires and buy into next month's contract. This process is called 'rolling forward', and it can result in the ETF paying up if the forward month contract is higher than the current month (contango), or cashing out if the opposition condition exists (backwardation).
good read: http://www.marketfolly.com/2009/01/how-contango-affects-crude-oil-etfs-and.html#ixzz4HethZYLI

Inflection point in Gold?

there's been some transactions in gold holdings.

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sauce2

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最近投资大佬减持黄金ETF或黄金股的消息不断出现，杜肯资本（Duquesne Capital）创始人亿万富翁德鲁肯米勒（Stanley Druckenmiller）已经清空他所有在黄金ETF SPDR Gold的仓位；索罗斯基金公司也大幅减持巴里克黄金公司股份，高位套现。全球最大黄金ETF--SPDR GOLD TRUST周三持仓较上日下降4.45吨，当前持仓量为957.78吨。
凯投宏观分析师Simona Gambarini表示你所看见的波动是基于对美联储加息的投机性，这已成为金价的主要驱动力。

奥德伊称，目前现存的黄金储量有30万吨，每年开采的量大约在2700吨，也就是说少于1%。Odey继续看好黄金，尤其是在低利率和大量刺激的环境下。他称，这最终会制造通胀，利好黄金。

Druckenmiller still owns just over 1.82 million shares of Barrick Gold (ABX), a position he opened in the first quarter of 2016. Shares of Barrick Gold have soared 198% in the first half of 2016.
Meanwhile, George Soros, the legendary hedge fund manager who runs his name-sake family-office Soros Fund Management, also closed a position on the SPDR Gold ETF that he had bought in the first quarter in the form of call options on 1,050,000 shares, the filing shows.That said, during the second quarter, Soros did buy 240,000 shares of the SPDR Gold ETF, a position valued at $30,365,000 at the end of the second quarter, the filing shows.Soros also massively pared back his stake in Barrick Gold, selling 18,348,235 shares in the second quarter. He last held 1,071,074 million shares of Barrick Gold, a position worth just over $22.8 million at the end of the quarter. Soros had been invested in Barrick Gold since the first quarter of 2016. 

As a reminder, hedge funds of a certain size are required to disclose their long stock holdings in filings known as 13-Fs. Of course, the filings only provide a partial picture since they do not show short positions or wagers on commodities, currencies, or fixed income. What’s more is these filings come out 45 days after the end of each quarter, so it’s possible they could have traded in and out of the position. Still, it does provide a glimpse into where some of the top money managers have been placing money in the stock market.

Farmland investing in the US

buffett on farmland in 2011 when commodities were at highs.

“Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices. A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.”

related: SMK's water label

https://www.tiaa.org/public/performance/market-commentary/market_commentary_articles/articles/mc_187.html

Planning for water shortages before a drought
Pests and weather pose risks to crop yields, but a season or even a few seasons of drought should not have a long-term impact on farmland investing. Many farmers have successfully managed droughts, pests and floods. Drought is a well-understood, age-old risk that can be planned for and mitigated, especially in short time horizons. The current drought is an excellent case in point. TIAA owns multiple properties in California across more than 37,000 planted acres, and as part of the property acquisition process, the stability of the water supply is always a primary focus of due diligence. This review includes research on the following water-related subjects:

• Historical rainfall levels, patterns, and distribution

• Availability and stability of the underground aquifer in the area of the property

• Availability and reliability of surface water from state, federal, or local water districts

• The willingness of water districts to work with land owners to buy, sell, and store water

• Availability of banked water supplies (water stored or “banked” underground)

• Presence of “excess” land with water rights that could be used for the benefit of permanent crops

Where possible, TIAA seeks to acquire properties with multiple sources of water, such as reliable groundwater wells that are supplemented by the right to receive surface water from water districts. Properties that are not serviced by water districts or other surface water rights are located in areas with historically reliable ground water supplies. Furthermore, advanced planning for those properties that typically receive most of their water from water districts, which are likely to have no supplies available in 2014, is required to ensure access to and availability of banked water. When droughts linger, however, they may cause problems for all farms—no portfolio is immune from a long-term drought. The current drought has demonstrated the value of planning for short-term water shortages.
In addition to acquiring land with fundamentally strong water supplies, actively managing farms may offset, to the extent possible, the impact of drought conditions. Strategies to accomplish this may include the installation of water-conserving technologies such as drip and micro-sprinkler irrigation systems; acquiring and banking water when possible; and winter transfers of underground water to above-ground storage to make the water more readily available to the farm during dry periods.

A long-term view of farmland investingLooking back at the 2012 drought across the U.S. Midwest, it is important to note that the drought impacts had no material negative impact on farmland values, and similarly we expect minimal long-term impacts for our California investments. This does not mean the danger of droughts, pests and floods are to be ignored; indeed, planning for these hazards is critical to maximizing returns and managing farmland investment risk. The longer a drought persists, the greater the potential for material impacts to any farmland portfolio. TIAA’s long involvement in farmland and deep connections within the agriculture industry provide us with the experience and expertise to properly analyze these risks, which fall outside the traditional realm of financial markets. We believe that farmland is among several private investments in real assets that offer the potential for competitive risk-adjusted returns, a hedge against inflation and improved portfolio diversification.

http://s.giannini.ucop.edu/uploads/giannini_public/1d/ab/1dabb1ff-3f32-4e16-8340-b7c2a1403e76/v15n1_3.pdf

Farm real estate remains the most direct method of investing in the agricultural sector. In recent years, the agricultural sector has provided consistently positive returns as a result of high commodity prices and rising farm income levels. The success of the agricultural sector has led to increased attention from investors outside of the traditional agricultural finance sector. 

http://www.zerohedge.com/news/2016-08-13/california-farmland-overvalued-70bn

The plan was relatively simple, in the absence of attractive fixed income yields, large asset managers (like TIAAmentioned above with $850BN of AUM) decided to purchase hard assets like farmland instead.  Farmland could then be planted with the highest value crop, which just happens to be almonds in California, to drive attractive ROICs on invested capital.  A few simple charts illustrate perfectly how the story played out. 

          Per the chart below, planted almond acreage in California nearly doubled from 2003 - 2016...  

We don't know about you but we're not sure about underwriting California farmland to a 4% return particularly in light of that "minor" little drought issue they're facing.  We would be looking for ROICs closer to 8% - 10%, at a bare minimum, which, at current almond prices, implies that acreage needs to come down around 45%-55% from the $35,000 per acre level.  

But the story doesn't end with almond acreage which only represents about 1mm of the total 8mm acres of irrigated farmland in California (see data from the United States Department of Agriculture).  So if we assume that California's 8mm acres are worth $25,000 per acre on average that implies roughly $200BN worth of farmland in total.  Now, even if that number is only inflated by 35% (and not the more draconian 45%-55% we suggested above) it implies that farmland owners, many which are New York institutional buyers, in California alone are sitting on $70BN worth of losses.

Where should we position in Gold

true that.

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“The seniors have blown themselves out of the water,” the former CEO and founder of Goldcorp Inc. said in an interview in Vancouver. “They’re just going to be ships rising in the tide. It’s going to be the intermediate and juniors who have the big runs in this cycle, and that’s where I want to be.”
That trend has already begun. Gold companies listed on the Venture and Toronto Stock Exchange with a market value of less than C$2 billion have climbed on average 247 percent this year, while their larger peers are up 125 percent, according to data compiled by Bloomberg.

predications have always been useless.

Not all his predictions have materialized. In February 2009 McEwen forecast gold would top $5,000 an ounce in about six years. Gold futures in New York did rise dramatically from that point and reached an intraday record $1,923.70 in September 2011. But the metal subsequently swooned and, even after a 27 percent gain this year, traded on Monday at about $1,345. He now forecasts gold will reach $5,000 by 2021.

Sand not oil is the new gold

http://www.bloomberg.com/news/articles/2016-08-03/one-nook-of-america-s-shale-industry-is-eyeing-a-big-comeback

Amid the gloom and doom that’s set in all along America’s shale fields these past two years, there has been one small, but consistent, bright spot. Sand, it turns out, is a much greater tool in hydraulic fracking than drillers had understood it to be. Time and again, they’ve found that the more grit they pour into horizontal wells -- seemingly regardless of how extreme the amounts have become -- the more oil comes seeping out.
The message from drillers is “more, more, more sand,” said Sean Meakim, an oil-services analyst at JPMorgan Chase & Co. “All of the numbers are going up and they’re going up dramatically.”

U.S. Silica’s shares have more than doubled this year, while Fairmount Santrol Holdings Inc. tripled. Hi-Crush Partners LP rose 116 percent and Emerge Energy Services LP climbed 103 percent. In comparison, oil exploration and production companies in the S&P 500 rose 14 percent, while those in a broad oil-services index are little changed.
“People are uber uber bullish on sand,” said Matthew Johnston, an oil-services analyst at Nomura Securities. “I get it. I understand where all the euphoria is coming from.”

Bill Gross a Gold Bull now

http://www.bloomberg.com/news/videos/b/ebb80809-8d91-4f0c-b733-2b626295fc8e

"Negative returns and principal losses in many asset categories are increasingly possible unless nominal growth rates reach acceptable levels," Gross said in his latest Investment Outlook note published Wednesday.
"I don’t like bonds; I don’t like most stocks; I don’t like private equity. Real assets such as land, gold, and tangible plant and equipment at a discount are favored asset categories."
Gross, who runs the US$1.5 billion Janus Global Unconstrained Bond Fund, said capitalism cannot function efficiently at zero-bound rates.
He reiterated that low interest rates may raise asset prices, but they destroy savings- and liability-based business models in the process.
"Banks, insurance companies, pension funds and Mom and Pop on Main Street are stripped of their ability to pay for future debts and retirement benefits," he said. "Central banks seem oblivious to this dark side of low interest rates. If maintained for too long, the real economy itself is affected as expected income fails to materialize and investment spending stagnates."
Overall, global monetary policies cannot succeed without nominal growth, Gross said. "The reason nominal growth is critical is that it allows a country, company or individual to service their debts with increasing income, allocating a portion to interest expense and another portion to theoretical or practical principal repayment via a sinking fund," Gross said.
"Without the latter, a credit-based economy ultimately -devolves into Ponzi finance, and at some point implodes. Watch nominal GDP growth."
Gross said in the United States, 4-5 percent GDP growth is necessary, in the euro zone 3-4 percent GDP growth and in Japan 2-3 percent GDP growth.

We’re more a gas company than an oil company - Shell

slowly but surely pivoting.

related:  http://shiohmekiah.blogspot.com/2016/03/singapore-government-committed-to.html


http://www.bloomberg.com/news/articles/2016-07-20/the-future-of-big-oil-at-shell-it-s-not-oil

At Australia’s Curtis Island, you can see Big Oil morphing into Big Gas. Just off the continent’s rugged northeastern coast lies a 667-acre liquefied natural gas (LNG) terminal owned by Royal Dutch Shell, an engineering feat of staggering complexity. Gas from more than 2,500 wells travels hundreds of miles by pipeline to the island, where it’s chilled and pumped into 10-story-high tanks before being loaded onto massive ships. “We’re more a gas company than an oil company,” says Ben van Beurden, Shell’s chief executive officer. “If you have to place bets, which we have to, I’d rather place them there.”
 A crucial element of Shell’s pivot toward gas was its $54 billion takeover of BG Group. The deal, which closed in February, gave the company Curtis Island, other massive LNG plants, and gas fields from the U.S. to Kazakhstan. It now has a 20 percent share of the global LNG market, scores of giant gas tankers prowling the seas, and double the production capacity of its closest competitor, ExxonMobil.
The price of LNG for delivery to Northeast Asia, home to the biggest importers, is down 30 percent in the past year.

In the 1970s it began drafting “Shell Scenarios,” detailed analyses of global politics and economics, and their implications for energy demand. It’s been less hesitant than competitors such as ExxonMobil—the only private oil company that’s larger—to acknowledge the need to cut carbon emissions and invest in greener energy as a hedge. This year it created a unit for renewables, and Van Beurden in June told investors that Shell “strongly supports” global agreements to limit climate change.

Wheat prices lowest in 10 years

The Bond King Gundlach on Brexit and since then

http://doubleline.com/dl/wp-content/uploads/Barrons-TheBondKingonBrexit.pdf

http://www.barrons.com/articles/jeffrey-gundlach-on-stocks-trump-and-gold-1468036872
dated 11th July 2016

Despite your risk aversion, you like emerging market bonds. What is the story there? 

It is a dollar play. The weaker dollar has been very good for emerging market debt, which is up 12% year to date. We expect the dollar will continue to be weak. For the past year or so, maybe even longer, there has been an incredible correlation between the probability that the Fed is going to hike interest rates and the value of the dollar. The probability of a rate hike is pinned to the ground right now. The market says there is almost zero chance the Fed will raise interest rates through November of this year. The dollar is going to have a hard time, despite the fact that it has been strong recently on the Brexit upset.

since then

How much lower could yields on Treasury bonds go? Could we see a 1% yield? 

We just passed the all-time low on the 10-year yield of 1.39%, which we saw in July 2012. It is no surprise the 10-year has been strong after Brexit. I’m not at all convinced that we are going to see much lower yields in the U.S. But even if we do, you’re talking about a de minimis profit. Even if the 10-year yield drops another percentage point, how much will you make? Less than 10%. There are better ways to speculate.

since then

Such as? 

Gold miners have a very high probability—if you bought them today and were disciplined—of making 10%. One of the things driving markets lower is a declining belief in—and enthusiasm for—central-planning authorities and the political establishment. In this environment, gold is a safe asset. There’s an 80% chance of making 10% in gold; the probability of a 10% gain on Treasuries is 20% at best. I’ve never seen a worse risk-reward setup.

since then

That doesn’t make for a very exciting portfolio. 

Our portfolios are high-quality bonds, gold, and some cash. People say, “What kind of portfolio is that?” I say it’s one that is outperforming everybody else’s. I mean, bonds are up more than 5%, gold is up substantially this year [28%], and gold miners have had over a 100% gain. This is a year when it hasn’t been that tough to earn 10% with a portfolio. Most people think this is a dead-money portfolio. They’ve got it wrong. The dead-money portfolio is the S&P 500.

since then

Markets: are we there yet? - 2016

Recently, it looks as though we are coming to a crucial point in the markets. 

Both US Stocks (S&P 500) and Bonds (global government bonds) are at All Time Highs.

Normally, when you are worried, you divests your stocks into bonds, so risk off.

when you are greedy, you sell your bonds and buy more stocks, so risk on.

However, developed markets government bonds yields are at all time low while US stocks are at all time highs. This is compounded by the persistent devaluation of developed markets currencies (less Japan) by the actions of central banks. On the other hand, you have all time lows in commodities with agricultural lows, energy coming off an all time low and gold and silver seemingly resuming their climb from more than a decade ago after the recent 4-5 years bear.

Summing up, we know that generally that

for bonds,

• when bond yields go down, bond prices goes up
• when interest rates go up, bond yields go up and bond prices go down
• in 1998, 10 yr singapore govt bond yield can be 5.69%
• negative yields can result in capital losses
• bond cycles are seemingly reaching the end of the decreasing yield cycle
• half of the developed world govt bond yields are negative

for currencies,

• most european currencies and CNY are dropping vs USD while yen is increasing
• some emerging markets currencies are gaining vs USD (some are commodity producers)
• reallocation of currencies from fiat to gold and silver

for stocks,

• yields are now in stocks? (there's renewed buying in the top yields markets, from income funds?)
• sector rotation in US equities from financials to real estate.
• US S&P 500 just broke out to all time highs (notice the divergence from emerging markets)

Note of caution: in trending markets, they can trend for a long long time.

Emerging markets Currencies going up vs USD

quite a number are commodity producers.

Gold looks to be really high now

Although I had previously indicated my preference for gold, I should probably include a note of caution that gold is looking really high now.

Gold a most winning investment in 2016 so far

More than 100% year to date.

The more widely accepted currency (crypto doesn't count) other than Japanese Yen that is least subjected to central bank manipulations and negative interest rates.

I treated it as a speculative asset bubble and maybe that is a correction I should make.

"Some regard it as a metal, we regard it as a currency and it remains our largest currency allocation."
- Druckenmiller

Japanese Yen - poor chaps just can't do anything to lower it!

What is La Nina and what does it affect

http://www.bloomberg.com/news/articles/2016-05-23/as-el-nino-exits-la-nina-looms-and-promises-her-style-of-mayhem

El Nino -- spurred on by a warming of the equatorial Pacific -- has dried up rice crops across Southeast Asia, cocoa fields in Ghana, coffee in Indonesia and sugar cane in Thailand since last year. It contributed to the Western Hemisphere’s strongest hurricane on record and the planet’s warmest year since at least the 1880s.

Now the ocean’s surface is starting to cool, which may signal the start of a La Nina. Scientists say this pattern typically contributes to more hurricanes in the Atlantic, drought in Brazil and heavy rain in Indonesia and India. While it might give a boost to U.S. natural gas, it could hurt Australian coal operations and palm-oil output in Malaysia. For some areas, it may be worse than a typical El Nino.

The cycles occur every two or three years on average and help regulate the temperature of the Earth as the equatorial Pacific absorbs the heat of the sun during the El Nino and then releases it into the atmosphere. That can create a La Nina: a “recharge state” when “the whole Earth is cooler than it was before this started,” Trenberth said. 

United States

While El Nino can produce a milder winter across the northern U.S., La Nina often brings chills to the Pacific Northwest, northern Great Plains and parts of the Midwest. For places like Iowa, a major source of corn and soybeans, timing is key, said Harry Hillaker, the state’s climatologist. If a La Nina occurs early in summer, there’s a chance for hot and dry weather, which can hurt the plants as they are pollinating.
Natural-gas producers in the U.S. “would really like La Nina,” said Teri Viswanath, managing director for the commodity at PIRA Energy Group in New York. They hope it will produce warmer temperatures in summer and the possibility for cooler temperatures in winter. “A cool winter, wow, that would be really helpful.”

U.K. and Europe

For Europe, the energy prospects are more muddled. From November to December, the phenomenon could mean colder temperatures and thus higher fuel demand.
“It’s also the case that we get the unfortunate relationship of lower wind speeds during that period, so that could mean we get lower wind power,” said Hazel Thornton, manager of the U.K. Met Office’s climate-change adaptation team. After the New Year, the pattern in Europe would typically flip, with temperatures becoming milder and wind increasing.

Brazil

For Brazil, La Nina is more dangerous than El Nino because it hits crop production “hard,” said Eduardo Assad, a climate researcher at Brazil’s state-run agricultural research company, Embrapa. That’s because it can bring drier conditions, which also could damage the water supply, worsening Sao Paulo’s water crisis, he said.
Brazil tops the world for soybeans and oranges, and Sao Paulo is one of the cities hosting football matches for this year’s Olympic Games.

India

For India, La Nina “means good rains,” said Atul Chaturvedi, chief executive officer of Adani Wilmar Ltd., a refiner and retailer of cooking oils. “India has been reeling with poor rains for almost two years now, so La Nina for all practical purposes should be a boon.”
It might come too late to enhance this year’s monsoon, however, said Dave Streit, chief operating officer for the Commodity Weather Group LLC in Bethesda, Maryland.

Malaysia

It also may come too late to help this year’s palm-oil crop in Malaysia, with futures there rising in February to the highest in eight years.
“There is no way the emergence of La Nina, or just normal weather, will undo the damage done by El Nino,” said Ling Ah Hong, director of Malaysian plantation consultant Ganling Sdn in Kuala Lumpur. “This is something a lot of people misunderstand.”
An extreme La Nina could cause yields to fall. Flooding hurts the ability to harvest and reduces the quality of fruit, said Roy Lim, group plantations director at Kuala Lumpur Kepong Bhd., Malaysia’s third-largest producer.

Australia

For Australia, the “main negative impact” from La Nina is heavy rainfall and “a disproportionate number of major flood events,” said Blair Trewin, a climatologist with the national Bureau of Meteorology.
In 2010-2011, the pattern triggered so much rain that 85 percent of the continent’s coal production was hit by flooding. Spot prices of metallurgical coal jumped to $383 by the start of 2011 from $212 per metric ton in the third quarter of 2010, Mark Levin of BB&T Capital Markets said in a May 10 note to clients.
La Nina returned in 2011-2012, helping to boost wheat production to a record 29.9 million metric tons. It also caused vegetation to flourish in the usually arid interior -- which fueled widespread grass fires when the rains stopped.
While the world waits to see if a La Nina will develop, there’s always a chance it could fizzle. Forecasters were certain an El Nino would form in 2014, only to see it fall apart. The prediction models are better around June and July than they are now, according to Michelle L’Heureux, a forecaster for the Climate Prediction Center.

Singapore Government committed to develop as LNG trading Hub

my comment from Rolf Suey:

my uneducated guess is the tankers bubble unlikely to burst and it is inconsequential at best. real money was mostly from upstream capex and currently midstream pipelies and downstream distribution. with that in mind, I watch LNG with interest. the market is smaller and SG wanted to be a bigger part of its pricing (currently very fragmented). 

see http://www.bloomberg.com/news/articles/2016-01-25/sgx-seeks-to-break-lng-s-price-link-to-oil-with-singapore-sling 

http://www.straitstimes.com/opinion/the-geopolitics-of-a-world-awash-in-oil 

http://www.straitstimes.com/business/companies-markets/government-committed-to-develop-singapore-as-lng-trading-hub-teo-eng 

I only wonder if it is more politically/survival motivated - https://www.ema.gov.sg/Piped_Natural_Gas_and_Liquefied_Natural_Gas.aspx

Some cut and paste for my own reference from the above links:

He added that he hopes the Singapore SGX LNG Index Group (SLInG), a weekly index based on the submissions from international LNG players who offer their assessment of LNG prices this end, will "evolve to be the Asian LNG price over time". The index, launched by the Energy Market Company in September, now comprises about 20 players. At the same time, the long-term drivers for LNG "remain valid", said Mr Teo. "While we have seen subdued Asia demand because of slower economic growth, there is a growing desire for cleaner air and environment in Asia." In Singapore, for instance, the Singapore LNG Terminal began commercial operations in May 2013, while the Energy Market Authority announced in May this year the shortlisting of four companies to supply Singapore with LNG, he noted. The Government "remains committed to growing LNG as an alternative fuel source and to develop Singapore into a LNG trading hub", said Mr Teo.


Today, there is growing attention paid to the prospects of the US as an LNG exporter influencing prices in Asia and Europe. The shift occurred because of the unexpected emergence of unconventional oil and gas production in North America, especially as Saudi Arabia did not reduce its oil production to stabilise prices at relatively high levels.
The building of LNG terminals in Singapore will enable Singapore to benefit from price differentials in the Asian, European and North American gas markets. When the first LNG terminal began operations in 2013, Singapore was no longer dependent only on piped natural gas from Indonesia and Malaysia.
Nevertheless, the critical point is that the presence of increasing sources of supply is likely to result in energy prices stabilising at lower levels for the next decade compared to the last 10 years, provided there is no major political upheaval which disrupts energy markets.


Natural gas can be supercooled and liquefied to transport it on tankers between areas difficult to link by pipeline. LNG traded in Asia -- where sellers such as Qatar and Indonesia ship fuel to buyers including Japan or China -- has traditionally been pegged to crude prices. That’s because the region lacks a benchmark similar to Henry Hub in the U.S., which the country’s burgeoning LNG exporters use in sales contracts.

“When Singapore talks about being a pricing hub, it is talking more about being a physical hub for gas where as a buyer and seller you can put gas in and take gas out,” Gavin Thompson, Wood Mackenzie’s vice president for China and Northeast Asia gas and power, said in an interview. “That price for the physical commodity is then priced into the short-term spot and long-term contracts, potentially the same way Henry Hub is priced into long-term LNG contracts.”


“Given the nascent stage of market development for LNG, the majority, if not all” of the new contracts will be traded over the counter and cleared by SGX, Lily Chia, the company’s head of product management for commodities, said in an e-mail. The exchange sees SLInG -- shorthand for its FOB Singapore SGX LNG Index Group-- as a pricing tool for traders, financial institutions and power companies, she said.

In 2006, in a bid to diversify and secure the country’s energy sources, the Singapore government announced plans to build an LNG terminal that can be used to store LNG for local use and re-export the fuel to regional markets. The LNG terminal commenced operations on 7 May 2013. 

Oil companies rolling over into the deep?

Rolfsuey.com concludes: 

Rolf’s Thoughts

If you ask me if oil price has already bottomed out, I seriously don’t know and will not predict! What I know is compare to last year, this is definitely a better time for entry into O&G stocks. Overall, I still think that oil price at $30 or even $40 is seriously not sustainable in the longer term.That said, while oil price directly impact Oil companies’ revenue and have a faster effect to her top and bottom lines, this is not the same for companies further down the supply chain. Even if oil price increases, Oil companies still need time to invest, and it is going to take time before new projects will be seen. This means many companies will see fundamental problems of lack of revenue and thinner margins.The recent rebound of share prices in tandem to oil price is supposedly just market reaction. Market in the short term at most times does not care about the fundamentals. So if you think that just because the Oil and Gas companies’ share prices have rebounded in the last two weeks, the companies are going to report strong figures in coming quarters?  Then I will beg to differ. I suspect, in terms of company performance, the worst have yet to come. Many people I know are still having their jobs intact having to finish the backlog project in 2016 and early 2017. The sentiments are not exactly that bad yet!

My comment in rolfsuey.com:

while the fed has been delaying the rate hike, the 'hot' money has been flowing from one place to another. this is the time for short time plays. I just got out of energy play the week before. didn't earn all of it. but did get some.
and this is what everyone should be doing for the forseeable future, i feel.

At this point in time, it does look as though it has hit near bottom, if not bottom. However, the sentiment has not yet proven to me to have fully turned.

Demand for energy is not increasing at the pace it used, in the US and in People's Republic of China. Another source of demand is needed: India.

As an investor also, the source of supply of crude is extremely crucial as it seems that there has been a changing trend in the supply for big energy consumers:

At the start of the decade, Russia supplied about 7 percent of total imports to China, compared to 20 percent supplied to China by Saudi Arabia. However, Russia has overtaken the Saudis as the largest supplier to China four times in 2015, which is significant because Saudi Arabia had lost the top spot only six times in the preceding five years, according to data from RBC Capital markets.

reuters reports:

Keen to play a bigger part in price creation, China plans to launch Shanghai crude futures. Other exchanges are also looking to capitalize on the change. "China is obviously keen to have an ever greater say in pricing. At the same time, Iran is returning to the market. Firms across Asia are looking at new ways of doing business and legacy arrangements are all under review," DME's Johnson said.

What this means is that we could potentially be at an inflexion point whereby:

1. the classical metrics for oil pricing is losing in significance, 

hence the loss of efficiency in capturing world trends (and an increase in scratching heads at matching fundamentals with prices in energy markets) though this will probably be years in the making.

2. will the glut in traditional supplies find trouble emptying? 

See the super oil tankers rolling in the deep. update: rolfsuey comments on tankers industry

3. the effect of Fed rate, USD value on oil prices and currency markets. 

"You see the relationship as the Fed makes noises about going ahead and raising again in April, that is going to give a boost to the dollar which had been selling off, therefore higher dollar prices drag down oil prices."
The stronger dollar also dampened demand for oil, while a report showing U.S. crude stockpiles soared to record highs for a sixth straight week, and triple what analysts had expected, rekindled worries of a glut and further pressured the commodity.