{"id":786,"date":"2013-09-19T09:15:14","date_gmt":"2013-09-19T14:15:14","guid":{"rendered":"https:\/\/allenergyconsulting.com\/blog\/?p=786"},"modified":"2013-09-19T12:02:18","modified_gmt":"2013-09-19T17:02:18","slug":"gas-basis-phenomenon-million-dollar-plus-question-will-it-go-on","status":"publish","type":"post","link":"https:\/\/allenergyconsulting.com\/blog\/2013\/09\/19\/gas-basis-phenomenon-million-dollar-plus-question-will-it-go-on\/","title":{"rendered":"Gas Basis Phenomenon \u2013 Million Dollar Plus Question Will it Go On?"},"content":{"rendered":"

I am surprised not to hear more discussion on what I believe is one of the biggest market questions for both the natural gas and power markets in the US.\u00a0\u00a0 The gas basis (spread between the locational point and henry hub) in the Midwest has gone negative in June and has stayed that way.\u00a0\u00a0 In addition, the forward curves portray that outlook with the 2016 basis spread averaging a minus 40 cents for Dominion South Point.<\/span><\/span><\/p>\n

Looking at the basis spread on a monthly level through time clearly shows historically the basis is a positive 30 cents with some extreme upside.<\/span><\/span><\/p>\n

\"\"<\/a><\/p>\n

Viewing the spread on the daily basis shows the amazing change in June of this year.<\/span><\/span><\/p>\n

\"\"<\/a><\/p>\n

There is much significance to this paradigm shift.\u00a0\u00a0 Number one the coal competition lies in the Midwest not much in Texas.\u00a0\u00a0 Henry Hub is the most quoted and reference gas price, but with this shift a $4 henry is not the same impact as it was just a year back for coal to gas switching.\u00a0\u00a0 A years back you were talking a $4-4.5\/mmbtu gas price to coal spread, now you are talking about $3.50-4\/mmbtu.\u00a0 As I have noted before moving into the sub $4 range the competition heats up.\u00a0 Retirement and operational decisions of the coal plants in the Midwest becomes even more dire with such a negative basis outlook.<\/span><\/span><\/p>\n

On a trading perspective, one can trade the basis.\u00a0\u00a0 Trading basis removes the guess work of where the macro supply\/demand of natural gas is going.\u00a0 In doing so, you somewhat mitigate some of the weather impacts.\u00a0 Arbritrages like this don\u2019t come so often.\u00a0\u00a0 The shift in basis and the continuation has resulted from infrastructure and related issues.\u00a0\u00a0 Utica and Marcellus has clearly changed the dynamic of natural gas pricing in the US.\u00a0 The million dollar plus question is how long can this persist.\u00a0\u00a0 Natural gas infrastructure development is rather quick compared to power development.\u00a0 Right of ways issues can be mitigated by building right on top of the existing path ways.\u00a0\u00a0 Rates of returns can be captured with spreads such as a 40 cent differential to henry hub.\u00a0\u00a0 I am surprised how long the forward curve goes out with such a discount.\u00a0 In fact the discount is seen every month even on the historically largest premium month February.\u00a0 Perhaps the trade you should not leave on the table\u2026.<\/span><\/span><\/p>\n

Your Energy Consultant looking for a few good clients \u2013 if you are interested, please call me,<\/span><\/span><\/p>\n

David K. Bellman<\/span><\/a><\/p>\n

614-356-0484<\/span><\/span><\/p>\n

\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

I am surprised not to hear more discussion on what I believe is one of the biggest market questions for both the natural gas and power markets in the US.\u00a0\u00a0 The gas basis (spread between the locational point and henry hub) in the Midwest has gone negative in June and has stayed that way.\u00a0\u00a0 In […]<\/p>\n","protected":false},"author":1,"featured_media":28,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,3,6],"tags":[216,32,14,36],"class_list":["post-786","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-insights","category-natural-gas","category-power","tag-basis","tag-coal","tag-natural-gas-2","tag-retirement"],"_links":{"self":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/786","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/comments?post=786"}],"version-history":[{"count":4,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/786\/revisions"}],"predecessor-version":[{"id":790,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/786\/revisions\/790"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media\/28"}],"wp:attachment":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media?parent=786"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/categories?post=786"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/tags?post=786"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}