US natural gas international demand unlikely to absorb domestic glut

ETF Securities US natural gas international demand unlikely to absorb domestic glutUS natural gas international demand unlikely to absorb domestic glut

Commodity Research US natural gas international demand unlikely to absorb domestic glut


  • Expansion of natural gas production in the US at a time when output of other fuels is also expected to increase will mean that the US will become more reliant on exports.
  • The US is reliant on NAFTA members for export demand. The risk of disappointment at a time of trade frictions seem high. An increase in inventory over the next six months seems a likely outcome.
  • The US’s role in the global liquefied natural trade is likely to rise. The US could prove to be a positive disruptive force, improving global natural gas security and pricing infrastructure. But it is unlikely make a material difference this year and thus exports are unlikely alleviate the US’s production glut.

End of gas as a transition fuel?

In 2014 President Obama labelled natural gas a “bridge fuel” to help the US meet a lower carbon emission target, before further deployment of renewables. The promise of less red tape to allow businesses to utilise this fuel was supposed to have lifted demand. However, a pledge from the new Trump administration to bring back coal jobs (and presumably increase coal supply) threatens to make gas’s competitor cheaper and will likely weaken demand for natural gas.

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Production expansion

US production of natural gas is set to expand strongly this year and next on the back of legacy investment when prices were higher. This reverses the decline in production in 2016. Meanwhile US consumption is expected to decline this year (before potentially recovering next year).

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Net exporter of gas for the first time

With domestic production outstripping consumption, the US’s reliance on imports will fall significantly. In fact, the US is likely to become a net exporter of natural gas for the first time in calendar year 2018 (and as early as Q3 2017 on a quarterly basis).

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Risk to inventory increase…

If foreign demand for US gas remains weak, we could see inventory rise above seasonal trends, possibly by more than a standard deviation above average, as we saw in 2016.

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…especially if foreign demand weakens

The risk of foreign demand being weak is material. Most of US’s exports is via pipeline and truck (90%). In terms of pipeline and truck exports Mexico accounts for approximately 70% of demand, while the remaining 30% goes to Canada. Both of these countries are being antagonised by the US’s stance on trade. The US’s provocation to withdraw from NAFTA is at the centre of the discord. The US’s threats to ban lumber and dairy imports from Canada and build a wall at its border with Mexico could be met with tit-for-tat retaliation. Canada is already threatening reciprocate with a ban on US coal. As Canada is an important transit point for US coal exports to Asia, that risks bloating US’s domestic coal supplies further (and thus presents a further downside risk to gas).

Moreover, it is difficult to believe that either Canada or Mexico will seek to expand their demand for US gas in an era of cheap oil (both countries are net oil exporters).

US as a disruptive force in the global LNG market

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About 10% of US production is exported in liquefied natural gas (LNG) via vessels. The US is a relatively small producer of LNG, accounting for only 1% of global exports, but is growing rapidly. The US’ LNG growth trajectory, based on liquefaction capacity currently being built, will drive the US from being a negligible player to become the third largest after Qatar and Australia by 2022.

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LNG relies on liquefaction infrastructure in exporting countries and regasification infrastructure in importing countries. There is little volume flexibility in global liquefaction infrastructure: apart from a significant portion (15%) that is offline due to operational issues, liquefaction operates at close to full capacity. Traditionally, global liquefaction facilities enter into long-term contracts – 80% of which are signed before the final investment decision to build a plant – and thus offer little flexibility to respond to spot prices. The US is a notable exception, preferring flexible destination and short-term contracts. The US’s rapid growth will offer spare capacity.

In terms of regasification, infrastructure lead times are much shorter. Today, global LNG import capacity is roughly three times the level of global export capacity. In theory, there is plenty of regasification capacity to absorb an expansion in liquefied exports.

The market is not accustomed to be responsive to prices because of supply inflexibly resulting from long-term contacts. However, the rapid growth of US LNG – that is generally not tied to long-term contracts – could disrupt the status quo and allow importers to opportunistically buy gas when prices are cheap. The US could become a swing producer in the natural gas market, buffering supply disruptions elsewhere and allowing importers to flexibly increase/decrease gas in their power generation mix in accordance with price. We view this a positive development from a global gas security perspective as well as its impact on smoothing the supply that could be subject to boom-bust cycles.

However, we don’t think that the long-term growth in foreign demand for US gas supplies will have a material impact on US gas prices this year, not least because demand in Asia and Europe (the largest import markets) is currently very weak.

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The view from the back of the queue – GBP in focus

The view from the back of the queue – GBP in focus

The view from the back of the queue. GBP in focus. The British Pound is plumbing 30-year lows against the US Dollar, after the shock of the EU Referendum result. GBP/USD has plunged around 11% since the EU Referendum vote, highlighting the mistaken expectations of financial markets. Uncertainty means elevated market volatility in coming weeks, with investors likely to remain defensive in their portfolio allocations in FX markets.Unsurprisingly, GBP is exhibiting the highest implied volatility in the G10. Options markets are indicating that Sterling is expected to weaken against all currencies in coming weeks.

The decision to leave the EU not only puts in question the UK’s relationship with the EU, but with trading partners globally. Only last month US President Obama indicated the UK would move ‘to the back of the queue’ in terms of trade negotiations. The final structure of an EU agreement will be determined by the upcoming withdrawal negotiations. Any protectionist tendencies from the EU are likely to have a relatively immediate adverse impact on costs and growth of the UK economy. Economic and political uncertainty will have a permanent negative impact on the domestic UK economy, as businesses postpone investment and employment activities. Softer economic numbers could begin to flow through in late 2016 and 2017.

Political uncertainty surrounding the Conservative party leadership is also keeping investors on edge. The new leadership for the Conservative party is expected to begin the EU withdrawal process for the UK. Market confidence is only likely to return with greater clarity over the timing and structure of the UK’s future relationship with the EU.

We expect a flattening of the Gilt curve, as concern over the implications of the EU referendum for UK growth weigh on inflationary expectations. Lower long-end yields are likely to keep GBP under pressure and we expect the US Dollar and Yen to remain well bid in the near term, as volatility remains elevated. In the medium term, falling inflationary expectations is likely to put pressure on the Bank of England to take further stimulatory action, another negative for GBP.

Martin Arnold, Global FX & Commodity Strategist at ETF Securities

Martin Arnold joined ETF Securities as a research analyst in 2009 and was promoted to Global FX & Commodity Strategist in 2014. Martin has a wealth of experience in strategy and economics with his most recent role formulating an FX strategy at an independent research consultancy. Martin has a strong background in macroeconomics and financial analysis – gained both at the Reserve Bank of Australia and in the private commercial banking sector – and experience covering a range of asset classes including equities and bonds. Martin holds a Bachelor of Economics from the University of New South Wales (Australia), a Master of Commerce from the University of Wollongong (Australia) and attained a Graduate Diploma of Applied Finance and Investment from the Securities Institute of Australia.

USA öppnar upp sig mot Kuba

USA öppnar upp sig mot Kuba

För dryga två månader sedan meddelades att USA öppnar upp sig mot Kuba, men också tvärtom. Den amerikanska hotellkedjan Starwood Hotels (NYSE: HOT), har tecknat ett avtal för att driva tre framstående hotell i Havanna. Händelsen är värd att uppmärksamma, detta är den första gången sedan revolutionen 1959 som ett amerikanskt hotellföretag har tillåtits arbeta på denna karibiska ö.

Dollarinvesteringen kom i samband med att den amerikanske presidenten Obama gjorde ett historiskt besök på denna karibiska ö. I samband med detta fick Starwood av det amerikanska finansdepartementet tillstånd att driva hotellrörelse på den ö som länge fungerat som en isolerad enhet, något som tidigare inte var möjligt på grund av långvariga ekonomiska embargot.

Om detta på sikt innebär att vi kommer att få se börshandlade fonder med fokus på Kuba, en så kallad landspecifik ETF, är ännu så länge för tidigt att sia om, men vi har sett andra, mer osannolika saker inträffa.

Börshandlad fond för cybersäkerhet kan komma i fokus efter dataintrång

Börshandlad fond för cybersäkerhet kan komma i fokus efter dataintrång

Börshandlad fond för cybersäkerhet kan komma i fokus efter dataintrång PureFunds ISE Cyber Security ETF (NYSEArca: HACK), har på senare tid fått en välförtjänt uppmärksamhet. I fredags meddelade FBI, Federal Bureau of Investigation, att den statliga byrån undersöker ett massivt dataintrång som påverkat tusentals federalt anställda i USA. The Office of Personnel Management, kontoret för personalledning, som lagrar uppgifter om statsanställda var offer för detta dataintrång. Nyheten om att The Office of Personnel Managements datorer hade hackats rapporterades efter det att börserna stängde i USA i torsdags. Amerikanska tjänstemän lät meddela att de misstänkte att det var hackare baserade i USA som låg bakom attacken men FBI fortsätter att undersöka händelsen. En tjänsteman beskrev det som en av de största stölder av offentliga uppgifter som någonsin skett.

HACK, den enda börshandlade fonden vi känner till som replikerar utvecklingen av företag som är verksamma inom cybersäkerhet påverkades inte direkt, men aktiekurserna på flera av de företag som denna ETF äger steg som en direkt följd av detta. , FireEye (NasdaqGS: FEYE) och Palo Alto Networks (NasdaqGS: PANW), HACKs näst största och femte största innehav, steg med 1,7 respektive 0,74 procent. Tillsammans står dessa innehav för 10,5 procent av det samlade kapitalet i HACK.

HACKs ägare har på kort tid (HACK lanserades i november 2014) lärt sig att dåliga nyheter när det gäller IT-säkerhet är goda nyheter för kursutvecklingen i HACK. Det har vid flera tillfällen visat sig sedan HACK lanserades på marknaden. Under onsdagen kom data från Storbritannien som visade att kostnaderna för online data säkerhet har mer än fördubblat det senaste året.

HACK har tidigare gett sina ägare en kursuppgång efter det att president Obamas intervju om cybersäkerhet hackades och efter att hackare kunnat ta del av uppgifter om sjukförsäkringar hos miljontals kunder hos försäkringsbolaget Anthem.

HACK tangerade i veckan en all-time-high nivå, och det är sannolikt att denna börshandlade fond kommer att fortsätta att leverera en god avkastning till sina ägare i takt med att allt fler företag ser över sin IT-säkerhet.

[Video] Tom Lydon on CNBC: What Obama’s Budget Means for ETFs

[Video] Tom Lydon on CNBC: What Obama’s Budget Means for ETFs

[Video] Tom Lydon on CNBC: What Obama’s Budget Means for ETFs

Tom Lydon appeared on CNBC this morning to discuss exchange traded funds (ETFs) he likes right now, as well as the impact President Barack Obama’s newly unveiled budget could have on certain areas of the market.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

Tom Lydon

President of Global Trends Investments

Tom Lydon is president of Global Trends Investments, editor and proprietor of With more than 25 years experience in asset management, Mr. Lydon began his career with Fidelity Investments Institutional Division prior to launching Global Trends Investments and ETF Trends.

Mr. Lydon is a frequent contributor to major print, radio and television media including Forbes, The Wall Street Journal, Investor’s Business Daily, Barron’s, MarketWatch and Investment News. His popular seminar, “How to Manage a Million Dollar Portfolio” has been attended by thousands of investors around the country.

As the author of iMoney and The ETF Trend Following Playbook, Mr. Lydon is a highly sought after speaker. His frequent appearances on CNBC and Fox Business make him one of the most recognized and well-respected commentators in the ETF industry. Mr. Lydon has been a high profile presenter at the largest industry trade shows and investment conferences, as well as a moderator of webinars.