Proactiveinvestors – Increasing Shale gas price hinders China’s goals

China’s Shale Gas No Revolution as Price Imperils Output: Energy China’s Shale Gas No Revolution as Price Imperils Output: Energy – This is an interesting and informative article from Bloomberg. Here is the opening:

China, consuming energy at the fastest pace among major economies, has set ambitious targets to exploit its reservoirs of shale gas, the same fuel the U.S. touts as the means to energy independence. It won’t meet them.

China is producing no commercial quantities of shale gas yet has set a target of 80 billion cubic meters by 2020, or 23 percent of total expected demand. Output in 2020 will likely be 18 billion cubic meters, according to the average estimate of seven analysts surveyed by Bloomberg. That’s more pessimistic than a year ago when the forecast was 23 billion cubic meters.

“China’s production targets are not realistic,” Chris Faulkner, chief executive officer of Dallas-based shale driller Breitling Oil and Gas Corp., which is in talks in China, said in an e-mail. “The only way China is going to be able to meet its output goals is for the government to pour money into exploration and development and ease up on the price controls.”

By dictating fuel prices in a centrally controlled economy, China has discouraged investment in shale because drillers risk losing money. The result: China National Petroleum Corp. and China Petrochemical Corp., the two largest gas producers, didn’t win exploration blocks in the last auction while companies with zero gas-drilling experience did.

Missing targets to develop the world’s biggest reserves of shale means China’s imports from foreign gas markets will be greater than anticipated. Such purchases might benefit suppliers of liquefied natural gas from Exxon Mobil Corp. toWoodside Petroleum Ltd., while bolstering supply from nations like Turkmenistan that pipe gas to China.

My view – I am not sure why China is adopting this seemingly tentative and amateurish policy towards its shale gas production, but this may reflect a lack of technological confidence. China may also prefer to see how others fare in producing its shale gas, before stepping in with more active government involvement. Additionally, there may be opposition from China’s other government overseen energy

policies. However, this is conjecture on my part and I would welcome any feedback from subscribers who are closer to the action.

Meanwhile, until other countries become more willing and adept at extracting their own shale gas and oil, global energy supplies will remain tight and in the controlling hands of major exporters such as Saudi Arabia and Russia. Among leading manufacturing countries, this will continue to favour the USA which has the potential to become energy independent, as Fullermoney has been pointing out for several years.

Tim Price: Value investing – My thanks to the author for his ever-interesting letter published by PFP Wealth Management. It is posted in the Subscriber’s Area but here are the introductory quotes:

“Sir, With reference to your report “Leading bullion bank declares end to gold’s decade-long rise” (February 2): Oh dear ! Why make it complicated ? If you expect lots of monetary expansion over the coming years, paper money’s value can be expected to decline. If you expect governments to stop trashing their currencies, it probably won’t. That is what the future price of gold will reflect, pure and simple.” – Alasdair Macleod, Head of Research, GoldMoney, in a letter to the Financial Times.

“The world’s central banks last year bought 534.6 tons of gold in 2012, the most since 1964, as global gold demand hit a record value level, the World Gold Council said Thursday in a quarterly report. Purchases by central banks for the full year rose 17% compared with 2011, while fourth-quarter purchases of 145 tons marked a 29% rise from the same period a year earlier.” – MarketWatch / The Wall Street Journal, 14th February 2013.

“Where is the wisdom we have lost in knowledge ? Where is the knowledge we have lost in information ?” – From ‘The Rock’ by T. S. Eliot.

My comment – If you are interested in the above, you will also enjoy Tim Price’s own assessments.

Email of the day – On gold:

“Dear David, I hope everything is fine in London. I have been a long-term holder of gold (unleveraged) for the last five years. In the last 15 months my holdings have experienced profit erosion. I am still deep in the money but after watching price action last week I am afraid we could see more sell-off in the PM. The trend is your friend until it changes, someone said.

“What could be, in your opinion, a threshold to watch in order to asses if the bull market is over?”

This item continues in the Subscriber’s Area and contains a related article.

My personal portfolio: Two trades closed – Details and charts are in the Subscriber’s Area, along with a lengthy discussion of these markets.

Additional commentary by Eoin Treacy

Danone Soars as Stronger Dairy Sales Accompany 900 Job Cuts This article by Dermot Doherty for Bloomberg may be of interest to subscribers. Here is a section:

Danone, the owner of Evian bottled- water and Activia yogurt, rose the most in almost three years in Paris trading after fourth-quarter sales beat estimates and the company announced plans to cut 900 jobs in Europe.

The shares gained as much as 5.5 percent to 52.97 euros, the steepest intraday advance since May 2010. Like-for-like sales increased 4.9 percent in the fourth quarter, exceeding analyst estimates of a 3.7 percent gain.

The sales growth helped ease concern over weakening demand for dairy products in southern Europe as consumers shift to cheaper private-label alternatives. Danone, which gets more than half its sales from dairy products, said it will cut about 4 percent of jobs in Europe, or almost 1 percent of its total workforce, as part of a plan announced in December to reduce costs by 200 million euros ($267 million) over two years.

The stronger sales might indicate that we may be close to a turning point, Warren Ackerman, an analyst at Societe Generale, said in a note to clients. A 0.4 percent increase in the quantity of dairy products sold was the main reason that revenue beat estimates in the quarter, he said.

My view Interest in food companies has increased following last week’s bid for Heinz but one of the primary reasons for this is a considerable portion of the processed foods and ingredients sector is booming. Danone’s impressive earnings growth has been fuelled not by expansion in its domestic European businesses but by its Rest of the World and Asian categories. These are its fastest growing regions and now represent 40% of revenue.

Following the introduction of the Euro, the majority of Europe’s multinationals concentrated on building pan European franchises in order to gain the greatest possible advantage from the single currency. However, in the aftermath of the sovereign debt crisis, those companies that neglected to grow their international businesses have underperformed while more globally oriented companies have outperformed. The food sector is heavily weighted by globally oriented companies with strong franchises and this may have contributed to its relative strength. I thought this may be an opportune time to review the European sector.

This extensive section continues in the Subscriber’s Area.

Diminished Lives and Futures: A Portrait of America in the Great-Recession Era Thanks to a subscriber

for this interesting survey by Mark Szeltner, Carl Van Horn, Ph.D. and Cliff Zukin, Ph.D. for the John J. Heldrich Center for Workforce Development. It is posted without further comment but here is a section:

More American workers feel they are responsible for dealing with the consequences of the Great Recession compared to employers and government, but this opinion varies among the employed and unemployed populations. The general public has little faith in the U.S. government’s ability to reduce the unemployment rate and twice as many Americans say the nation will have to depend on private- sector job growth. Despite a general lack of faith in government policy, Americans support several government strategies that may lower the unemployment rate. Tax credits to businesses that hire new workers and long-term education programs are most popular followed by government-created job and retraining programs for the unemployed.

Cotton Futures Rally to 9-Month High on Surging Chinese Imports This article by Yi Tian for Bloomberg may be of interest to subscribers. Here is a section:

There’s tightness because Chinese imports are heavier than expected, Chris Kramedjian, a fiber and textile consultant at INTL FCStone LLC, said in a telephone interview from Nashville, Tennessee. There’s not enough cotton freely available.

Cotton for May delivery rose 1.5 percent to 84.42 cents a pound at 12:12 p.m. on ICE Futures U.S. in New York. Earlier, the price reached 84.87 cents, the highest for a most-active contract since May 10.

China will import 14 million bales this year, the USDA said on Feb. 8. That’s higher than the 12.5 million forecast in January. A running bale weighs 500 pounds, or 227 kilograms. A bale weighs 480 pounds.

My comment Cotton prices broke successfully above 80¢ in January and have been consolidating above that level since. A sustained move below it would be required to question medium-term recovery potential.

This extensive section continues in the Subscriber’s Area.

Email of the day on addition to the Chart Library:

Good afternoon. I would be grateful if you would add to the Chart Library an ETF chart: ETFS 3x Short JPY Long GBP Sedol B3TG7R5. Thank you for your assistance as always.

My view Thank you for this suggestion which has been added to the Chart Library.

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