The price of natural gas is plummeting at a pace that has caught even the experts off guard.
A 35 percent collapse in the futures price over the past year has been a boon to homeowners who use natural gas for heat and appliances and to manufacturers who power their factories and make chemicals and materials with it.
The country is flush with natural gas as a result of new drilling techniques that have enabled energy companies to tap vast supplies that were out of reach not so long ago. The country’s natural gas surplus has been growing even as the country burns record amounts.
This winter’s warm weather slowed the growth in demand, however, and created a glut. In the Northeast, December was the fourth warmest in the last 117 years. Winter supplies are 17 percent above their five-year average.
The natural gas futures price fell 13 percent last week, to $2.67 per 1,000 cubic feet. That’s the lowest winter-time level in a decade.
“The market has been overwhelmed with gas,” says Anthony Yuen, a commodities analyst at Citibank.
He and other analysts expect the price to average near $3 for all of 2012. If the weather stays mild, the price could even dip below $2, a level not seen since 2002.
Cheap natural gas is mainly a good thing for the economy:
_ More than half of U.S. households use natural gas for heat, and a quarter of the nation’s electricity is made from it. Falling heating and electric costs are offsetting the impact of high gasoline prices and enabling families and small businesses to spend on other things. Residential gas and electric customers are saving roughly $200 a year, according to a study by Navigant Consulting.
_ For companies that make plastics, fertilizer and other chemicals derived from natural gas, the falling prices are nothing short of a windfall. The same goes for makers of products from steel to bricks to beer. All use a lot of natural gas to heat their furnaces. U.S. manufacturers are becoming more competitive globally as a result of the country’s cheap natural gas, industry officials say.
Some industries aren’t cheering, though.
With electricity prices falling, the profits of all electric power producers _ whether they rely on coal, nuclear or wind _ are shrinking.
Companies that drill solely for natural gas are earning less these days, too. That’s prompting some to hunt instead for oil, whose price is near $100 a barrel.
Still, drillers aren’t reducing natural gas production as much as they would have during previous periods of low prices. They’ve found ways to produce the fuel at much lower cost so they can be profitable at much lower prices. And, in many cases, natural gas is a byproduct of oil drilling, which is so profitable that companies are going after every barrel they can find.
Analysts say in some oil and gas fields, drillers could give the gas away and still be hugely profitable just from selling the oil.
The benefit of falling natural gas prices to homeowners is not as big as a major drop in oil and gasoline prices would provide. The average household’s annual gasoline bill is about $4,000, roughly double the average annual gas and electric bill.
Also, the fuel cost is only half of a customer’s bill. The rest is transmission and delivery charges, which don’t change along with fuel prices. Homeowners are paying $10 Payday advance.18 per 1,000 cubic feet of gas on average, including transmission and delivery charges, according to the Energy Information Administration. Over a year, a customer will burn an average of 75,000 cubic feet, or about $760 worth.
The multi-year drop in natural gas prices caught most industry experts by surprise.
In the middle of the last decade, natural gas looked to be in short supply. Production in the U.S. was slowing, imports from Canada were rising and plans for importing liquefied natural gas from the Middle East and elsewhere were drawn up.
Natural gas futures hit nearly $15 in 2005. Chemical and metals manufacturers were shutting U.S. factories and moving overseas, where gas was abundant and cheaper. Farmers in need of fertilizer were turning to inexpensive imports from Canada, Trinidad and Asia.
But over the next few years, drillers perfected methods first tried in 1981 that now allow them to profitably extract gas trapped in shale formations _ layers of fine-grained rock that in some cases have trapped ancient organic matter that has cooked into oil and natural gas.
Engineers combined the ability to drill horizontally into shale with a technique called hydraulic fracturing. Millions of gallons of water, sand and chemicals are pumped into wells to break rock and create escape routes for the gas. In doing so they unlocked natural gas deposits deep underground across the East, South and Midwest that are large enough to supply the U.S. for decades.
This eventually turned the shortage into a glut, and reversed the fortunes of some industries.
An ammonia plant owned by CF Industries in Donaldsville, La., that was shuttered by its former owner in 2004 is running again. Steel maker Nucor Corp. is building a factory in Louisiana; Shell Oil Co. is planning a petrochemical plant in Appalachia; and Dow Chemical is building a type of chemical feedstock plant it hasn’t built in the U.S. since 1995.
“A whole slice of American industry is benefiting,” says Steve Wilson, the CEO of CF Industries, which makes ammonia and other fertilizer ingredients. CF Industries, which is based in Deerfield, Ill., has seen its daily natural gas costs fall from $6 million to $2 million over the past few years. The company is planning to spend more than $1 billion expanding its U.S. plants.
While industrial customers are betting on low prices for years to come, things could change if demand increases sharply because of extreme weather or faster-than-expected economic growth, or if the U.S. begins exporting gas. It’s also possible that natural gas drilling could be curtailed by environmental regulations designed to protect drinking water from hydraulic fracturing.
Legislators in New York and New Jersey have banned hydraulic fracturing temporarily, and the Environmental Protection Agency is studying it and may propose national regulations.
The most likely near-term scenario is that prices keep falling, according to Rusty Braziel, an analyst at Bentek Energy.
“This ain’t the bottom,” he says.
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Jonathan Fahey can be reached at http://twitter.com/JonathanFahey.
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Fixed mortgage rates fell once again to a record low, offering a great opportunity for those who can afford to buy or refinance homes. But few are able to take advantage of the historic rates.
Freddie Mac said Thursday the average rate on the 30-year fixed mortgage fell to 3.89 percent. That’s below the previous record of 3.91 percent reached three weeks ago.
Records for mortgage rates date back to the 1950s.
The average on the 15-year fixed mortgage ticked down to 3.16 percent. That’s down from a record 3.21 percent three weeks ago.
Mortgage rates are lower because they track the yield on the 10-year Treasury note, which fell below 2 percent. They could fall even lower this year if the Fed launches another round of bond purchases, as some economists expect.
Average fixed mortgage rates hovered around 4 percent at the end of 2011. Yet many Americans either can’t take advantage of the rates or have already done so.
High unemployment and scant wage gains have made it harder for many people to qualify for loans. Many don’t want to sink money into a home that they fear could lose value over the next few years.
Mortgage applications have fallen slightly on a seasonally adjusted basis over the past four weeks, according to the Mortgage Bankers Association.
Frank Nothaft, Freddie Mac’s chief economist, said that until hiring picks up and unemployment drops significantly, the impact of lower mortgage rates will remain muted.
Previously occupied homes are selling just slightly ahead of 2010’s dismal pace. New-home sales in 2011 will likely be the worst year on records going back half a century.
Builders hope that the low rates could boost sales next year. Low mortgage rates were cited as a key reason the National Association of Home Builders survey of builder sentiment rose in December to its highest level in more than a year.
But so far, they have had little impact on the depressed housing market.
To calculate the average rates, Freddie Mac surveys lenders across the country Monday through Wednesday of each week. The average rates don’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.
The average fee for the 30-year loan fell to 0.7 from 0.8; the average on the 15-year fixed mortgage was unchanged at 0.8.
For the five-year adjustable loan, the average rate declined to 2.82 percent from 2.86 percent. The average on the one-year adjustable loan fell to 2.76 percent from 2.80 percent.
The average fee on the five-year adjustable loan rose was unchanged at 0.7; the average on the one-year adjustable-rate loan was unchanged at 0.6.
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After weeks of handwringing about a possible loss of France
Thousands of Cyprus government workers held a three-hour strike Tuesday to protest a proposed two-year salary freeze they regard is unfair.
Even limited strikes are rare in the eurozone member of 800,000 people with a bloated public sector that takes up around a third of all government spending.
But trade unions said they were not adequately consulted in talks between the government and opposition parties _ which hold a majority in Parliament _ in hammering out the deal.
The strike closed schools early but did not affect airports, sea ports and hospitals.
In Nicosia, hundreds of protesters booed and mocked lawmakers entering and exiting parliament, and union leaders said they should have targeted tax dodgers and the rich, not public employees.
“We unreservedly say no to these false dilemmas that make workers easy prey, while provocatively leaving businesses, big capital and generally those who have untouched,” said Glafcos Hadjipetrou, boss of the PASYDY union.
Finance Minister Kikis Kazamias told union leaders they were left out of the talks because he needed a quick deal because the island faces sanctions under EU rules if it doesn’t agree on deficit-cutting measures by mid-December.
“This was something that shouldn’t be considered the rule, but rather the exception,” Kazamias said.
Cyprus is trying to slash its fiscal deficit and restore investor confidence following credit rating downgrades _ mainly due to its banks heavy exposure to debt-laden Greece _ that have brought it a step above junk status.
The island, with a euro18 billion ($23.8 billion) economy, has been largely locked out of international markets for loans to pay its bills and refinance its debt, as interest rates on its bonds have shot up as a result of the downgrades.
Cyprus is relying on a euro2.5 billion ($3.3 billion) loan from Russia at an interest rate much lower than what markets are offering to see it through until around middle of next year.
Austerity measures the government is trying to push through parliament include raising a sales tax from 15 to 17 percent, a scale-based levy on private sector salaries above euro2,500 ($3,312), reducing social benefits by euro200 million ($265 million) and reducing public sector positions.
Lawmakers will hold separate votes this week on the budget and additional austerity measures, which aim to shrink the deficit from the current 6.5 percent of gross domestic product to 2.4 percent.
Bank of America agreed to pay $315 million to settle claims by investors that they were misled about mortgage-backed investments sold by its Merrill Lynch unit.
The settlement was disclosed in court papers filed late Monday in U.S. District Court in Manhattan and requires the approval of a judge.
The class action lawsuit was led by the Public Employees’ Retirement System of Mississippi pension fund. The fund claimed that the investments were backed by poor quality mortgages written by subprime lenders Countrywide Financial Corp., First Franklin Financial, and IndyMac Bancorp, a bank that failed in 2008.
The settlement represents another attempt by Charlotte, N.C.-based Bank of America Corp. to put its legal issues behind it. In the first half of the year alone the bank put up $12.7 billion to settle similar claims from different groups of investors.
U.S. District Judge Jed Rakoff has to approve the settlement, something that could prove difficult since the settlement includes no admission of guilt from Bank of America no fax cash advance.
Just last week, Rakoff struck down a $285 million settlement that Citigroup Inc. reached with the Securities and Exchange Commission. The settlement would have imposed penalties on Citigroup even as it allowed the company to deny allegations that it misled investors.
Rakoff said the public has a right to know what happens in cases that touch on “the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives.” In such cases, the SEC has a responsibility to ensure that the truth emerges, he wrote.
In 2009, Rakoff had rejected a $33 million settlement between the SEC and Bank of America on similar grounds, calling it a breach of “justice and morality.”
Iraq on Sunday signed a multibillion-dollar deal with Royal Dutch Shell PLC and Japan’s Mitsubishi Corp. to tap natural gas in the south, one of the biggest agreements by the OPEC member to develop an energy sector battered by years of neglect and war.
The $17 billion deal forms a joint venture to gather, process and market gas from three oil fields in the oil-rich province of Basra. That gas, pumped in conjunction with crude oil, is currently burned off _ or flared _ due to lack of infrastructure.
The 25-year joint venture is called Basra Gas Company. Iraq will hold a 51 percent stake, to Royal Dutch Shell’s 44 percent and Mitsubishi’s 5 percent shares. The gas will be used mainly for domestic energy needs, but there is also an option for exports.
Iraq’s Oil Minister, Abdul-Karim Elaibi hailed the signing as “historic turn in Iraq’s oil industry.”
Shell CEO Peter Voser told reporters that Iraq is now a “…substantial part of Royal Dutch Shell’s portfolio in the Middle East.”
For Iraq, the deal is a key part of its strategy to alleviate power generation woes. Despite billions of dollars spent since the 1990s to rebuild Iraq’s dilapidated electrical grid, Iraqis still suffer through chronic power outages that have led to sometimes violent protests.
The deal is Shell’s third in Iraq since the 2003 U.S.-led invasion, and it will bolster the company’s presence in a country which sits atop 143.1 billion barrels of crude oil and 126.7 trillion cubic feet of gas reserves.
A memorandum of understanding on the Shell gas deal was signed in September 2008, but the venture has been bogged down ever since. Some lawmakers argued that the deal should have been approved by parliament and officials in Basra wanted more benefits for their province cash advance today.
Iraq burns off almost half of the 1.5 billion cubic feet per day of gas that it produces. The deal will help the country capture more than 700 million cubic feet per day of gas from three fields.
They are the 17.8 billion-barrel Rumaila field being developed by a BP-CNPC consortium, the 4.1 billion barrel Zubair field, handled by an Eni-led consortium and partners Occidental Petroleum Corp. and KOGAS, as well as the 8.6 billion barrel West Qurna Stage 1, which is being developed by ExxonMobil-Shell consortium.
ExxonMobil has recently been embroiled in controversy after it became known that the company had signed a contract with the Kurdish regional government _ and not the Oil Ministry in Baghdad _ to develop oil fields in northern Iraq.
The Kurdistan Regional Government has clashed with Baghdad over who has the right to sign deals with international oil companies to develop Iraq’s vast energy resources.
The Kurds, who control three provinces in northern Iraq, want to be able to sign contracts with international oil companies to develop their own fields, while Baghdad maintains it has final authority.
On Sunday the oil minister said the ministry sent letters to ExxonMobil asking for an explanation of the reports that they signed these deals, but has not yet heard a response. He declined to comment on what penalties the Texas-based company might face.
Kellwood’s chief has indeed been lured away by J.C. Penney.
Michael Kramer, 47, who has been the head of the Town and Country-based apparel company since 2008, will start as chief operating officer of J.C. Penney on December 5. His potential departure had been reported last week.
Kramer said today that the major draw of the new job was Ron Johnson, J.C. Penney’s new chief executive and his former boss at Apple’s retail division, and his vision to revamp the company.
“If this opportunity with Ron wouldn’t have come up, I would still be here moving Kellwood forward,” he said.”If this team can turn J.C. Penney around and restore it back to being America’s favorite store, that will be a story.”
His successor at Kellwood has not yet been determined. But there are a couple of internal candidates being considered for the job, he said.
“I accomplished what I came here to do at Kellwood,” he said, adding that the company is now the most profitable on a percentage basis than it has been in 15 years. Kellwood is a private company and so does not publicly report its results.
Since he arrived at Kellwood, Kramer has helped restructure the company and steered it on a path to acquire a number of designer brands such as Rebecca Taylor, Scotch & Soda, and Adam. Kellwood had previously been known mostly for its moderately-priced brands like Sag Harbor and private-label clothes for outlets like Walmart.
“Mike will help ensure that J.C. Penney is a strong partner to our suppliers, which will be essential to our success as we set out to re-imagine the department store experience,” Johnson said in a statement.
Johnson has also recruited other former Apple colleagues to be part of his team at J.C. Penney. Daniel Walker, a former Apple executive, will be chief talent officer at J.C. Penney. And he has lured Michael Francis, who had been chief marketing officer at Target, to be J.C. Penney’s president.
But even though Kramer is taking the new job, he may stick around St. Louis. His wife and children like it in St. Louis, he said, so he may commute to Texas (where J.C. Penney is based) during the week and come back to St. Louis on the weekends.
As Europe’s leaders struggle toward a solution to its debt crisis, hopes are growing that cash-rich China will take a major role in a rescue _ expectations that are likely to be dashed.
On Friday, the chief executive of Europe’s bailout fund visits Beijing to talk to potential investors. Beijing has expressed sympathy for the 27-nation European Union, its biggest trading partner, but has yet to commit any cash.
Joining in a bailout could help Beijing in its campaign to join the top ranks of governments that manage the global economy _ a leadership role that many around the world have been urging China to take.
So far, Beijing has promised to help only by continuing business as usual, trading with Europe and stockpiling some of China’s multibillion-dollar trade surpluses in the safest European government bonds.
“For China, this could be a very big break in its efforts to take the seat at the head of the table in the international monetary hierarchy,” said Carl Weinberg of High Frequency Economics in a report.
Still, getting directly involved would put Chinese leaders in a position that is fraught with political risk _ spending public funds to bail out European countries that despite their debt crisis are still far richer than China per person.
Managers of China’s sovereign wealth fund, a potential investor, have tried to maintain an image as careful financial guardians after they faced criticism when early investments abroad failed to perform well.
During a visit to Paris this month, the Chinese fund’s chairman said Europeans should “respect yourself” and stop “expecting charity from China.”
European leaders are looking for investors outside the 17 nations that use the euro common currency, including sovereign wealth funds, for a fund to backstop the main bailout fund, the European Financial Stability Facility.
That is part of a complex plan under development to have the EFSF act as an insurer for bonds issued by weaker governments such as Italy and Spain, making them more attractive to investors.
The head of the EFSF, Klaus Regling, is due to explain the insurance scheme during his visit Friday to Beijing.
On Thursday, French President Nicolas Sarkozy was set to telephone his Chinese counterpart, Hu Jintao.
Even if China contributes, Beijing needs to limit its risk, said Huang Wei, an economist at the Chinese Academy of Social Sciences, a government think tank. She said that could mean the best Europe could hope for is a Chinese purchase of bonds guaranteed by the region’s stronger governments.
“I don’t think the Chinese government will invest directly in sovereign debt, such as Greek debt, because that’s very dangerous,” she said.
Still, China’s robust economy and $3.2 trillion in foreign reserves have fueled hopes in weaker economies that Beijing might emerge as a last-minute alternative to European aid and austerity measures that have fueled protests guaranteed online personal loans.
“You will hear some less-serious people in Ireland or Greece say, We don’t need you Europeans with your conditions because the Chinese will bail us out,” said Katinka Barysch, an analyst at the Centre for European Reform, a think tank in London.
But the vast scale of Europe’s needs _ as much as 1 to 2 trillion euros for the bailout fund _ makes that unrealistic, Barysch said.
“This is just not something the Chinese will give them,” she said.
China’s foreign and finance ministries did not respond Thursday to questions about whether Beijing would contribute to a bailout and the status of talks with Europe.
Asked on Wednesday about a possible Chinese role in a European bailout, foreign ministry Jiang Yu expressed hope the crisis could be resolved by the EU.
“I believe the Chinese side, with an open attitude, will discuss with the European side multiple ways of cooperation,” Jiang said.
Some Europeans are looking to Chinese companies, still financially strong after the 2008 global crisis battered Western business, as potential buyers of public assets such as power companies that might be sold to raise money.
But Chinese buyers that picked up European companies and other assets earlier at fire-sale prices have run into trouble managing them. They have shifted to pricier but more reliable blue-chip acquisitions such as China National BlueStar Corp.’s purchase this year of Norway’s Elkem, a maker of silicon and carbon parts, for a hefty $2 billion.
Chinese help also might carry a political cost, which has sparked unease for some in Europe.
Last month, Wen Jiabao repeated Beijing’s longstanding appeal to Europe to grant it market economy status _ a move that would make it harder for European companies to press trade complaints against Chinese rivals _ though he refrained from linking it directly to possible Chinese help in the debt crisis.
The top EU economic official, Olli Rehn, has distanced himself from a proposal floated by Brazil for China and other developing countries to jointly contribute.
“That would however have very far-reaching political consequences,” Rehn said in an Oct. 21 interview with Handelsblatt, a German business newspaper.
“It would mean that the Chinese, the Russians and Brazilians would indirectly have a place at the table in the eurozone,” Rehn said. “Such a decision would have strategic significance that is not to be underestimated.”
When it comes to the intersection of energy and geopolitics, few know more than economist Daniel Yergin.
Yergin cofounded and now chairs the IHS Cambridge Energy Research Associates, an energy consultancy. But he’s better known for his epic tale on the history of the global oil industry, “The Prize: The Epic Quest for Oil, Money, & Power,” a No. 1 best-seller that won the Pulitzer Prize for general nonfiction in 1992 and was later made into a PBS miniseries.
Yergin spoke Friday at the St. Louis County Public Library about his latest book, “The Quest: Energy, Security and the Remaking of the Modern World”
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