Market watch: Gas futures prices decline in profit taking

Sam Fletcher
OGJ Senior Writer
HOUSTON, Dec. 20 -- Energy futures markets were mixed Thursday, with a drop in natural gas prices as a result of profit taking on the New York Mercantile Exchange.

Meanwhile, Petroleos de Venezuela SA Pres. Alí Rodríguez Araque said it will take "a tremendous effort during several years" for Venezuela's economy to recover from the general strike, now well into its third week, that has crippled PDVSA's daily oil production and virtually eliminated current exports of crude and petroleum products.

"A long time will pass before the company recovers, not only from the economic damage, but also from the damage inflicted on Venezuela's oil industry in the international market," Rodríguez said. He reiterated his call for striking PDVSA employees to return to work.

A large majority of PDVSA's employees are participating in the strike that began Dec. 2 to topple Venezuelan President Hugo Chavez. Rodriguez has tried to use retired oil workers, military personnel, and even foreign workers to break the strike. But soldiers failed to restart oil operations because they cannot operate the sophisticated equipment.

As a result, PDVSA's oil production has been slashed to 370,000 b/d, less than 15% of its normal level of some 3 million b/d. PDVSA officials said production is unlikely to fall further because they do not want to cut off basic electric power services in that country.

Meanwhile, Venezuela's oil inventory capacity is nearly full, since virtually all refining and export operations are at a standstill. More than 40 tankers are moored near inactive Venezuelan ports. Oil accounts for nearly a third of Venezuela's gross domestic product, half of the government's income, and 80% of the country's exports, primarily to US markets.

TotalFinaElf SA said it halted almost all of its oil production in Venezuela, except for 2,000 b/d from Jusepin field. That output is continuing just to maintain the mature field's production capability, officials said. Jusepin normally produces 38,000 b/d. But most of that had to be shut in because the gas needed for injection to compensate for the field's natural decline is no longer being delivered, officials said.

The halt of TotalfinaElf's production in both Jusepin and Zuata fields is being used to anticipate work that was scheduled for a later period, said Jean-marie Guillermon, TotalFinaElf's general manager in Caracas.

The January contract for benchmark US light, sweet crudes gained 12¢ to $30.56/bbl Thursday on NYMEX, but the February position lost 24¢ to $30.19/bbl. Heating oil for January delivery increased 0.53¢ to 86.06¢/gal. Unleaded gasoline for the same month was up 0.27¢ to 87.81¢/gal.

The January natural gas contract dropped 23.1¢ to $5.05/Mcf, in what analysts at Enerfax Daily described as "an overbought market falling in a wave of profit-taking."

They said, "The heavy winter premium pumped into the market by speculators, an illiquid market, finally started to show signs of faltering. The market ran out of buyers, so it took profits. It failed to generate new highs, even with a supportive storage withdrawal."

The US Energy Information Administration reported Thursday that 159 bcf of gas was withdrawn from US underground storage during the week ended Dec. 13. That was down from 162 bcf the previous week but up from 42 bcf during the same period last year and well above the consensus of Wall Street analysts.

US gas storage now stands at 2.6 tcf, down 560 bcf from year-ago levels and 151 bcf below the 5-year average. Meanwhile, meteorologists at Salomon Smith Barney Inc. are predicting colder-than-normal weather in most of the central and eastern US in late December and early January.

Salomon Smith Barney analyst Robert Morris said Thursday that the latest bi-annual report by Canada's National Energy Board (NEB) noted that initial productivity from the Western Canada sedimentary basin (WCSB) declined to less than 400 Mcfd per well in 2001 from 600 Mcfd per well in 1996. Average decline rates in first-year production in that area increased to 50% last year from 35% in 1996.

"The NEB estimates that the overall decline rate for current production in the WCSB is 20%/year, although we believe that it could be closer to 25%," said Morris. At either rate, he said, total Canadian exports of natural gas to US markets are likely to drop during the next 2 years. "We estimate that total Canadian imports will decline roughly 3% this year and an additional 4% in 2003," he said.

Morris noted, "The NEB report did not include production from the prolific Ladyfern field, which has already declined 40% from its peak production rate of 650 MMcfd in June. We believe Ladyfern production could exit next year as low as 100-150 MMcfd, or down more than 50% on average in 2003 relative to this year."

In London, the February contract for North Sea Brent crude lost 27¢ to $28.22/bbl on the international petroleum exchange on the International Petroleum Exchange. The January natural gas contract lost 3.4¢ to the equivalent of $3.87/Mcf on IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes increased by 44¢ to $29.56/bbl Thursday.
Contact Sam Fletcher at samf@ogjonline.com

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