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Updated:
August 2007
By John Sodergreen
Around the Desk is a regular column written by Scudder's founder
and editor-in-chief, John Sodergreen. The column, like the publication,
is typically packed with deep grapevine (intel to you), speculation
and a somewhat irreverent view of the market. Comments or leads
are always welcome. Contact Sodergreen at johns@scudderpublishing.com.
Lots of News Around the Desk This Week…
The Amaranth and Energy Transfer Partners announcements kept us
all busy this week, but there were a couple other bits worth noting…Energy
stocks took it on the chin again this week as the Dow cratered around
400 points on Thursday, the second-worst trading day of the year.
Housing sector reports looked bleak apparently, and all hell broke
loose. Bond traders were appropriately roused from their typically
catatonic state and cranked into overdrive. Suddenly earnings didn’t
matter a lick. Hmm. We’re told this is a buying opportunity
for energy stocks. Days like this we always seem to field a call
or two from some excitable teenager from Morgan or Merrill informing
us what a great opportunity there is now to own Bob’s IPP
or Calpine. Alas, we are not allowed to invest in energy stocks
at Scudder Publishing. But playing with these junior brokers is
always good fun. “Coal is the new nuclear,” they tell
us. Funny, I thought nuclear was the new nuclear… “Retail
power is gonna be huge in California,” they say. Yup…Word
on the street late today is that BMO finally unloaded its gas book.
The rumor is that a Goldman-related firm bought it and cleared the
whole shooting match through ClearPort on the 25th. The additional
700,000 contracts on that platform made it the biggest day yet on
ClearPort…Moments ago we learned that the “Goldman-related”
lead is a dead end. So, it is still a mystery who exactly bought
BMO’s gas book…The US economy advanced at a 3.4 percent
rate in the second quarter of 2007, while the Fed’s preferred
inflation measure slid to 1.4 percent. Congressman Jim Saxton, ranking
member of the Joint Economic Committee, made the following statement
regarding the new economic data: “The figures released today
show that the US economy is strong and resilient. Despite continued
weakness in residential construction and related problems in subprime
mortgage lending, the pace of economic growth in the second quarter
was quite healthy. As the Federal Reserve recently noted, ‘The
US economy generally performed well in the first half of 2007.’
The decline of inflation, as reflected in the Fed’s preferred
measure, is also a very positive development. Federal Reserve and
private economists forecast that the economic expansion will continue
into the second half of 2007 and into 2008.” …Shell
and Respol are coming under increasing pressure to abandon their
proposed South Pars gas field project in Iran after a group of influential
pension funds wrote to the companies urging them to cut business
with the holder of the world’s second-largest natural gas
reserves. The letter, sent yesterday, says the funds – including
California Public Employees’ Retirement System (CalPERS) –
are “deeply concerned” that the worsening situation
and tightening economic sanctions could “negatively impact
companies doing business there.” The funds added that proposed
legislation could see pension funds forced to sell nearly $18 billion
in investments in foreign companies doing business there. The warning
letter – also sent to Total, Eni, Gazprom and ONGC –
comes after Shell and Repsol signed an agreement, worth a reputed
$10 billion, this January to possibly develop and produce LNG from
Iran’s South Pars gas field in the Persian Gulf… China
National Petroleum Corp, responsible for 80 percent of the country’s
gas output, said it produced 22.6 Bcm of saleable natural gas in
first half 2007, up 16.5 percent from the same period last year.
The company said gas output increased by over 20 percent in 2005
and 2006 and that gas had risen from 2.2 percent to 3 percent of
Chinese primary energy consumption. It quoted a government energy
report as saying that China’s gas production will rise by
an “explosive” 11 percent to 13 percent a year over
the next 15 years and that gas demand will reach 100 Bcm by 2010.
CNPC produced 44.2 Bcm of gas in 2006, doubling output in only five
years. But despite soaring output, Chinese demand is rising even
faster, reaching 55.6 Bcm last year, a 21.6 percent increase, according
to the BP Statistical Review of World Energy… According to
a recent issue of the Waterborne LNG Report, Europe and the Far
East seem to be waking up a bit. After a good long five-month nap,
European and Asian buyers have slowly begun to surface and are now
showing interest in cargoes for prompt month deliveries all the
way out to the fourth quarter. A handful of excess cargoes have
been seen moving into Europe recently, including the first cargo
to move into the Isle of Grain since March 2007. That vessel, the
“Berge Arzew,” is scheduled to discharge this Friday
from Algeria. In Asia, Japanese cargo interest was bolstered by
the nuclear outage caused by the recent earthquake. Prior to the
earthquake there had been an increase in Far East price checks for
deliveries as early as August. The flow of spot Western cargoes
to the Far East has begun and thus far we have identified one cargo
in June, four cargoes in July and expect to see at least another
four in August. Every spot cargo moving East at this point are volumes
that otherwise would be flowing to the US. Algerian activity can
now be used as a spot flow barometer and Sonatrach has diverted
its full attention away from the US and is now focusing on Asia
and Europe. By the end of this month Algeria will have sent at least
five cargoes or 15 Bcf to the Far East and 6 Bcf to Europe. Increases
in European demand will primarily be the affect of a damaged pipeline
feeding the UK market and price volatility there will likely prevent
a steady flow of LNG from moving into the UK especially this early
in the Summer. We also don’t anticipate a flood of cargoes
to move into Continental Europe during this time of year due to
the limited storage capacity there. Asia, on the other hand, can
be considered a “sleeping giant”. When buyers are in
need of spot LNG, they will typically pay what they have to bring
it in. Because of the overall size of the market, and the tight
supply situation East of the Suez Canal, Asian demand has the capacity
to put a serious dent in Western supply in a relatively short period
of time. Because the interest in spot LNG at this time in Europe
and Asia stems primarily from interruptions outside of typical seasonal
patterns, the majority of Summer excess volumes in the Western Hemisphere
should continue to move to the US although growing seasonal demand
in Europe and Asia will continue to chip away at the grip currently
held by the US on today’s Summer excess supply. For more information
on the Waterborne LNG Report, go to www.waterbornelng.com or contact
Steve Johnson at sjohnson@waterbornelng.com...
Our phantom columnist Gas Wag submitted a piece recently that should
remind us all just how good we have it. Or not. “A former
SAC trader named Tong has sued hedge fund SAC Capital Mgt., LLC
, and in that suit was the following statement: ‘In early
2005, Jiang telephoned Tong and told him that he had taken a job
at a private asset management firm called SAC and would like Tong
to join his emerging markets macro trading group there. Between
May and early July of 2005, Tong spoke to Jiang and expressed his
interest in joining him at SAC. In early to mid-July, Jiang told
Tong over the phone that he was offering him a job that would include
a minimum salary of at least $250,000, and could shortly become
considerably more profitable. Jiang told Tong that he would be trading
stock indexes, currencies and interest rates. Tong accepted the
job offer over the phone soon afterward. Jiang then told Tong that
he would have to demonstrate his commitment to Jiang and SAC by
resigning from his current position and moving to New York as soon
as possible. Tong complied and made a trip to New York. On July
24, Tong met with Jiang both alone and with other members of Jiang’s
group. Jiang told Tong about his top secret training philosophy,
which was to include a program of strict confidentiality and the
elimination of Tong’s alleged personality flaws by requiring
him to wear certain kinds of clothing at work.’” The
eminent Gas Wag somehow managed to discover the following list of
personality flaws (PF) and personality flaw-mitigating clothing
(PFMC) that could have been utilized by SAC trainers:
PF Nail biting PFMC SAC Welders Gloves
PF Flatulence PFMC SAC Charcoal lined underwear
PF Ego PFMC SAC Lederhosen
PF Inflexible PFMC SAC Giant Slinky
PF Hostile PFMC SAC T-Shirt with bull’s-eye on back
PF Humorless PFMC SAC Spats on shoes
The docket can be viewed at http://www.courts.state.ny.us/REPORTER/3dseries/2007/2007_27200.htm.
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