SPX’s Running Correction, Gold’s Setup, Oil Explodes!

February 14, 2012 by  
Filed under Investment

The financial markets continue to climb the wall of worry on the back of more Fed Quantitative Easing. Those trying to pick a top in this choppy bull market may prove to be correct for a couple hours but over time the shorts continue to get clobbered.

Quantitative easing was enough to turn gold back up and gave oil just enough of a nudge to breakout of its cup and handle pattern explained later.

The past few weeks the number of emails I receive on a daily basis about what individuals should do about short positions they took on their own has growing quickly. Usually when my inbox starts to fill up with traders holding heavy losses trying to pick a top I know something big is about to happen and its not going to be in the favor of the herd (everyone shorting). In the past couple week there have been some great entry points for the broad market whether its to buy the SP500, Dow, NASDAQ or Russell 2K. I focus on trading with the trend and entering on extreme sentiment readings as shown in the chart below.

Extreme Trend Trading Analysis

Below are my main market sentiment indicators for helping to time short term tops and bottoms. That being said I don’t pick short term tops in hopes to profit on the down side. Rather I wait for a extreme sentiment bottom to be put in place, then enter long with the up trend (Buy Low).

Once there is a 1-2% surge in price and sentiment indicators are showing a short term top I like to pull a little money off the table to lock in some profits while still holding a core position (Sell High). This is exactly what I/subscribers have done over the last couple weeks. This is a simple yet highly effective strategy and works just as well in a down trend except I focus on shorting extreme sentiment bounces. Subscribers know what these indicators are as I cover them each week in my daily pre-market trading videos as we prepare for the day ahead.

SPX Running Correction

Since early September the equities market has been on fire. In late September the market was extremely toppy looking and trading at key resistance levels from prior highs convincing a lot of traders to take a short position. But instead of a correction the market surged and has since continued to grind its way up week after week.

This rising choppy price action can be seen two ways: 1. As a rising wedge with a blow off top (Bearish) 2. Or as a Running Consolidation (Bullish)

The running consolidation happens when buyers are abundant picking up more shares on every little dip. Overall looking at the intraday price action you will see market shakeouts as it tries to buck traders out before it continues higher. This choppy looking market action if not read correctly looks extremely bearish to the novice trader and the fact the market is so overbought it easily convinces them to take short positions. This choppy action is just enough to wash the market of weak positions before starting another run up.

All that said, both a blow off rising wedge and a running correction are very bullish patterns for a period of time. Again I cannot state it enough, trade with the trend and the key moving averages.

Gold Shines On The Daily Chart

The gold story is straight forward really… Trend is up, quantitative easing is back in action and that is helping to list gold and silver prices. Key moving averages have turned back up and gold closed at a new high which shows strength.

Golden Rocket

With another round of quantitative easing just starting and gold making another new high last week there is a very good chance gold stocks will rocket higher in the coming 8 months. I have been following Millrock Resources Inc. because of the team involved with this company. A breakout to the upside here could post some exciting gains if you take a look at the chart and see where the majority of volume has traded over the years along with the bullish chart patterns (Cup & Handle/Rising Wedge) with strong confirming volume. From 84 cents to the $3.50 area there should not be many sellers other than traders slowing taking profits on the way up.

Crude Oil Breaks Out Of Cup

Crude oil has been dormant the past few weeks even though the US Dollar has plummeted. But last week’s news on more QE was enough to send oil higher. The surge took oil prices straight to the 2010 highs as expected and blew past my first target of $86.00 per barrel. I figure it will consolidate here for a while until we see if the dollar bottomed last week or is just testing the breakdown level.

Weekend Trading Conclusion:

In short, the market has played out exactly as we planned and all four of our positions are deep in the money. As we all know the market goes in waves in both price and for trade setups. The past couple weeks were great for getting into trades and now the market is running in our direction. It will take a few days for the market to stabilize (pullback or pause) before we could get anther round of trade setups. Keep position sizes small as the market remains overbought and a sharp correction could happen at any time. Until then, keep trading with the trend.

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Here’s the Place for Natgas

February 13, 2012 by  
Filed under Investment

Natural gas is a broken global market.

For oil, there’s enough import-export capacity worldwide that global prices tend to align closely. In natgas, global markets are fragmented. Leading to disparate pricing in different regions. Just look at the comparison below, from PFC Energy.

One of the implications being: if you’re going to produce natural gas (or ship it as LNG), find the regions with the top prices.

Increasingly, it’s looking like this will be Asia. And specifically, southeast Asia.

By way of example, Vietnamese Deputy Minister of Industry and Trade Hoang Quoc Vuong said last Thursday that Vietnam will likely need to import over 800 billion cubic feet of gas annually by 2025 in order to meet demand.

The announcement came as part of the release of a World Bank report on Vietnamese gas sector development. In the work, the Bank estimates that Vietnam’s gas use will triple over the next 15 years.

The report also recommends that Vietnam move toward liberalized, competitive gas pricing in order to spur development of domestic gas resources. Exactly the kind of environment that will create opportunities for gas producers.

At the same time as gas demand is ramping up in nations like Vietnam and Thailand, the Asian super-powers are also hungry for supply. PetroChina said today that northern China (including Beijing) could face gas shortages of up to 300 million cubic feet per day this winter.

This is not a huge amount, relatively speaking. But it does underscore the point that Asian gas use is only growing, and supply (as well as transportation infrastructure) has lagged.

All the signs of a good gas market. I’m going back at the beginning of December to continue looking for projects that could capitalize.

Here is to the wide world of gas.

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The Coal Rush Cometh

February 12, 2012 by  
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I’ve been talking a lot about coal lately.

Specifically, how India’s need for thermal coal imports is going to tighten this market, both in terms of prices, and bids for coal deposits within shipping distance of Asia.

India simply doesn’t have enough coal. As of yesterday, one-third of the nation’s coal-fired power plants were running at “critical” levels of coal stocks (meaning less than seven days of supply). And 10% are at “super-critical”, with less than four days of stock.

I’ve been on this theme for about six months. And finally some of the signs of India’s “dash for coal” are starting to appear.

First, buy-outs of coal deposits. Last week, Canadian-listed coal developer CIC Energy received a $400 million takeover offer from a “multi-billion dollar Indian conglomerate”. CIC is moving forward the Mmambula coal field in southeastern Botswana (thanks for the heads-up, Saee).

India is even getting active in the junior side of the coal business. This week India’s Bhushan Steel announced its intent to buy a stake in Bowen Energy, an Australian coal explorer and developer with projects in the Bowen Basin.

Then there’s the signals from the coal market itself. This week, the chairman of the Indonesian Coal Mining Association told attendees at the Coaltrans Upgrading Coal Forum in Jakarta that India will pass Japan as Indonesia’s biggest coal export customer by 2011.

“In the past, India only bought high-quality coal, but now they started buying a lot of low-rank coal also because of an increase in domestic consumption,” chairman Bob Kamandanu said. He predicted India’s coal imports from Indonesia will rise to 70 million tonnes, up from 40 million tonnes this year.

In addition, Bloomberg reported this week that traders handling Richards Bay, the biggest export port for South African coal, believe rising demand from India could push coal prices at this locale to a two-year high.

The piece also quoted T.K. Chatterjee, procurement manager at Indian power major NTPC, as saying, “India will be importing in a big way… This will lead to an increase in prices.”

Signs, signs, everywhere signs.

Here’s to fields of coal.

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Two International Natgas Opportunities

February 10, 2012 by  
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The European Union is taking a serious look at natural gas.

Last week, the EU ratified a “gas solidarity” bill for Europe. The measure is aimed at ensuring steady and adequate natural gas supplies for all member nations.

For the EU, the biggest concern is Russia. Gazprom has showed its willingness over the last few years to use gas as a political lever, cutting off supplies in order to put pressure on Russia’s neighbors. Remember January 2006, when Gazprom squeezed the Ukraine, with knock-on reductions in gas supply for several other EU nations.

No one in Europe wants to see this happen again. So last week’s bill is calling for a number of important counter-measures.

Under the legislation, EU nations will have to create a plan to deal with a 30 day disruption of normal gas supplies.

This could be accomplished in a couple of ways. Firstly, securing alternative supplies. A good incentive for EU nations to support domestic gas drilling. After all, no supply is more reliable than gas flowing within your own borders.

The other way of dealing with supply disruptions would be building gas storage. By creating underground storage facilities, EU nations could build up strategic reserves as a buffer against any drop in imports.

Both drilling and storage could provide some interesting investment opportunities.

A third way of profiting could be from inter-EU gas trade. Under last week’s bill, EU authorities are proposing to legalize the trade of Gazprom-imported gas between EU nations. Something Gazprom has always opposed.

If trading of such gas across Europe becomes widespread it will open up arbitrage opportunities for nimble traders who know these markets. Such trading has been a profitable enterprise for some investors in the U.S., spurred by the development of several new pipelines over the last five years.

The new bill is still early-stage, but it’s an interesting start. We’ll keep watching to see what concrete measures governments come up with to support the gas industry.

Here’s to strategic supply.

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What Do Katy Perry and Eminem Have in Common?

February 9, 2012 by  
Filed under Investment

Answer: both were quoted in the keynote speech last week by U.S. Commodity Futures Trading Commission (CFTC) commissioner Scott O’Malia, at the 13th Annual Energy and Commodities Conference in Houston.

Referencing pop culture in a speech on derivatives is a little unorthodox. But what O’Malia was describing to conference attendees was even more so.

The commissioner was discussing the CFTC’s implementation of the Dodd-Frank Act. Otherwise known as the financial reform rules in the U.S.

A major thrust of Dodd-Frank has been the regulation of derivatives. Options, futures, swaps and other such instruments that are seen as being a large and potentially risky part of the financial infrastructure.

And the U.S. government and financial institutions have been working frantically since the financial crash to implement new rules to make derivatives trade safer. As O’Malia put it, “I’ve given up rolling up my sleeves and have just about torn them off.”

But much of this work is now coming to fruition. There have been a whirlwind series of meetings, speeches and seminars on proposed derivatives rules over the last several weeks in the U.S. The market is bracing for big changes.

And those changes are arriving. Today CME Group (owners of a good chunk of American trading platforms, including NYMEX and COMEX), announced that it has officially begun clearing of over-the-counter interest rate swaps.

Clearing of swaps is a priority item under the new rules. Basically this means when these derivatives are traded between two parties, the trade must be executed through a central, independent agent (much like a stock exchange does). Buyers and sellers are no longer allowed to do business directly with each other.

There are several reasons lawmakers pushed for greater clearing of derivatives. It standardizes the market. And provides some degree of insurance if trades go bad.

But one of the main stated reasons for the move is price discovery. By having one (or perhaps a few) central exchanges looking at all derivatives trades, government and regulatory bodies will be able to gather data on going prices, volumes and other metrics. In the past, such information was very hard to gather.

The result being, derivatives markets are going to get a lot more transparent.

Ultimately, this is a good thing. But the transition may be rocky. As I’ve discussed previously, price discovery can provide some unpleasant surprises.

Up until this point, there has been little data on the market value of many derivatives. Meaning that owners of such instruments probably had some leeway in reporting the value of their derivatives holdings.

That leeway is now disappearing. Clearing of derivatives will provide hard data on prices. It’s likely that holders will be forced to use such pricing for reporting purposes.

What do you want to bet that someone somewhere has been keeping derivatives on the books at inflated prices in order to beef up their financials? For any such groups, clearing and price discovery could lead to some significant write-downs. The kind that lead to the last crash, after the introduction of mark-to-market accounting rules.

This is a critical development. We’ll be keeping an eye out for any warning signs over the coming months.

Here’s to clearing things up.

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Fiscal Discipline and Unintended Consequences

February 7, 2012 by  
Filed under Investment

It’s no secret Ron Paul is expected to chair the Monetary Policy Subcommittee starting next year, and that he intends to properly audit the Fed and US gold reserves as initial steps in attempting to return America to some degree of fiscal discipline. Because there can be little doubt an expanding bureaucracy has hit the limit in terms of what the system can take, which is why you will never see the Fed voluntarily abandon QE2. And this is especially true because of the deflation (of everything from currency to population) peak oil guarantees, not to mention other unintended consequences increasing fiscal restraint would bring. The bottom line here is the bureaucracy will continue to monetize the debt on an increasing basis until the system implodes on itself, which will be the result of uncontrollable rising interest rates and gold prices, which according to Mark Lundeen should be considerably higher.

Impossible? It could be argued it’s already happening, where this week for example, despite a generous POMO schedule this week bonds are falling anyway due to the reporting of uncontrollable price increases and increasing sovereign credit concerns that will surely not disappear anytime soon. So please, don’t be confused by all the propaganda, no matter what the bureaucracy leaders tell you, money printing and monetization practices will remain relentless, although we may get a taste of austerity not many will like as we move into next summer as Mr. Paul does his damdest to fix the world, which will of course prove dangerous to our fiat currency economies at the time. Crashing stock and bond markets in North America will certainly make ‘austerity’ a four letter word as process unfolds, however there is no guarantee another bloated fiat currency system would emerge on the other side of an unwinding, making ‘debt’ an actual four letter word people (creditors) will undoubtedly be paying closer attention to under such circumstances.

In the meantime however, prices have not been falling to support the bureaucracy’s phony inflation reports, so with the retail trade ‘all in’ (to stocks) as reflected in US index open interest put / call ratios, explained here last week, it’s time for a short-term correction. At least that’s what it better be, or the equity complex will be in real trouble a bit early from a cyclical perspective, where we are anticipating a terminal high in stocks during the first quarter of next year, as per the count and patterning presented in the charts below. First we have the long-term Super-Cycle Grid that shows although more room exists for gains, we are entering a cyclical (time-line) turning point.

The second chart zooms in on the lower degree waves to look for clues in the most probable count, etc., displayed below, which in my view would confirm the rising and high probability of an important top being put in place sometime in the first quarter of next year, or shortly afterwards. What we have unfolding here is a typical zigzag, which is a five-wave sequence separated by a corrective three-wave sequence, followed by another five-wave sequence, which you can see has yet to unfold. I have studied the count here for some time and see no other alternative; especially given the big picture where we are expecting a test of the 2009 lows eventually (the larger degree a – b – c sequence in red), so none will be provided.

And as you may know, I also expect the same patterning and timing from gold (and silver) running into next year based on historical precedent (the last big top was in February), where although the cycle might run longer this time because of the higher degree (Grand Super-Cycle?) of the present move, still, some degree of top can be expected at this time, and I can tell you why. Why then? Because our buddy, Ron Paul, will likely be successful in getting enough people who matter pushed over into the Fed audit / austerity camp by then, which will be bad news for the aggregate bubble economy. And again, even if he is ultimately not successful in this regard, he will be making enough noise when he is first appointed chair to get people taking him seriously, which at a minimum will push prudent traders into defensive postures, which means lightening up on equities, precious metals, and anything else associated with the inflation trade.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. We are not registered brokers or advisors. Certain statements included herein may constitute “forward-looking statements” with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Do your own due diligence.

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How You Trade the Big Trends in 2011

February 2, 2012 by  
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I hope everyone had a great holiday and new years!

It’s time to reset our profit counter to zero and start looking for new profitable trades along with managing our current open positions on our small cap stocks which we continue to hold with gains of 66%, 35% and 10%.

Last year was a tough one as the stock market chopped around in a very large range giving off buy and sell signals every week and some times every other day… If you understand how to trade optionsthen these conditions can make you a boat load of money.

Those who follow me or trade with me through my trading newsletter know how conservative I am when looking for low risk setups in both ETFs and stocks. And no doubt agree there were some extended periods of time when we did not have any trades because the volatility on a daily basis was making it the risk higher than what I wanted us to take, thus we waited for setups instead of chasing prices. We still locking in some solid gains with 8 winning trades, but feel we can better this year especially if we get less chop and more of a trending market.

It’s safe to say some people just do not like being in cash, hence the reason so many want stock picks and trades all the time. But to be flat out honest, I love being in cash or at least holding a good chunk in cash waiting for a high probability opportunity to pop up on my charts before committing my hard earned cash. It’s better to be wishing you were in a trade than to have all your money tied up in losing positions just because you wanted to be active… Because I give you only the trades I am making with my own money, I think that is the reason things are slower paced, unlike some other newsletters in this industry which fire off new trades each day or week just to keep those addicted (wanting stocks picks all the time) happy.

Anyways, 2011 should be a great year for trading, investing and education. Last years fast paced market I know either took your money and got you really frustrated, or you made money and was able to use the difficult conditions to fine tune your trading and money management stills like I did. 2011 feels like it’s going to start out similar to 2010 where we get a move up into mid January, but once earning season starts the market sells off on the good news for an 8-10% correction.

The good news is that after last years fast paced market and my constant refining of my strategy and money management rules, we should be able to catch the majority of the trends this year both up and down using stocks, regular ETFs and Inverse ETFs.

As much as I would like to forecast what I think will happen this year, I have decided to take the market one quarter at a time to keep everyone more in tune with what’s happening now and a glance forward up to 2-3 months.

Take a look my SP500 charts for the next 3-8 weeks below.

SP500 Index – Daily Chart On this chart you can see that the overall trend right now is still clearly up. But with this current situation I feel one should be on the sidelines waiting for the market tip its hand telling us its headed higher or lower. If it prices start to fall we will look to short the market in order to profit from the correction as long as the market provides an optimal opportunity.

Currently the market sentiment levels are at extreme highs, which is the same as last January and April’s highs. With extreme sentiment, light volume (lack of buyers) and earning season just about to start I cant help but think a nice correction is about to take place which will cleanse the market before the next big leg higher.

If all goes according to plan we should see an 8-10% correction. A pierce of the November low is what I am looking for as that would trigger a lot of protective stop orders and create panic selling in the market. It is panic selling which creates a market bottom. That being said we may not get that large of a correction which is why we must continue to monitor the market closely as my analysis will change with the market.

Jan 2010 SP500 Correction This time last year the market was in a very similar situation with market sentiment, light volume, and earning season just around the corner…

Its difficult to pick tops because they can stay overbought for an extended period of time, bottoms are a little different simply because fear is more powerful than greed and shows it’s self on the charts once you know what to look for and how to trade it. My point here that you should not jump the gun and start shorting just because you think one is around the corner. I prefer to wait for more of a clear signal that sellers are in control then ride the short term down trend and hope it blows up into the correction I think we are about to see.

During bottoms there are new low washouts, and the same goes for tops, we get several small new highs just before the price rolls over, and that has yet to happen.

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The Bond Liquidation is On

February 1, 2012 by  
Filed under Investment

Big jumps in yields on U.S. Treasury bonds over the past week.

Check out the one-year Treasury. Yields are up 30% since November 8. To their highest level since early August.

The rise in yields has been across the board. The 10-year Treasury is up 15%. The 30-year has jumped 8.5%, to its highest level since May.

Here’s the really interesting thing. At the same time as regular Treasuries yields have been rising, yields on inflation-protected securities have also gone up.

Look at the 10-year inflation-protected. Up nearly 100% since November 4.

Inflation-protected yields have also had an across-the-board rise. The 5-year is up 90%. The 30-year is up 25%.

What does this mean? Rising yields indicate falling prices. Investors are selling off Treasuries of all types.

Why? It could be the lack of confidence in the American dollar that many analysts have been forecasting since the U.S. began printing money to bail out the financial system and the economy. Perhaps the announcement of “QE2″ two weeks ago was the last straw for some Treasuries buyers, who are now moving money out of dollar-denominated investments.

Or it could be the opposite. Perhaps because of QE2, investors are predicting inflation ahead. Increased money supply is going to drive up prices of homes, stocks, commodities and other goods.

Investors who believe such would favor riskier investments over low-yielding Treasuries (even of the inflation-protected variety). Maybe this week’s all-encompassing bond sell-off is a bet that QE2 is going to work.

(BTW, if you want to follow this story closer, www.statsweeper.com is a great resource. Check out the Treasury yields data series daily. Or simply watch the homepage for alerts on significant changes, created by Statsweeper’s automated data monitoring system.)

Here’s to putting your money in the right place.

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Pearl Exploration and Production Ltd

January 31, 2012 by  
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Folks, we’ve got a great one for you this month. Let me introduce you to one of the best investments to come across my desk in a while. It’s got all the elements necessary for a win-win situation, because the folks calling the shots have done it all and done it well before. The company is Pearl Exploration and Production Ltd. and I am very excited about how the future looks like for this company.

In this report we will draw many comparisons between Pearl and BlackRock Ventures (BVI) for reasons we’ll lay out in this article. First a little background on my experience with BVI: US investors in Black Rock Ventures benefitted from a variety of factors including the price of oil. Share prices rose steadily, so investors like me that bought at $4 and sold at $24 had a 600% gain on the share price. Now, this was compounded by a 31% increase in currency. So, after making 600%, add another 180% for a total gain of 780%. I fully expect the same factors to be working for PXX moving forward.

It is my opinion that the stock price of Pearl will follow the same pattern as BVI. To prove my point, we’re going to compare oil price, capital structure and currency gain. After that, you’ll have to make up your own mind. I know which way I’m going….

Among the many comparisons between BVI and PXX there is one thing that remains the same – and this is the most important aspect of what we’re talking about here. Heading up the team both at BlackRock and at Pearl are John Festival, President; Don Cook, CFO; the Pearl team ads Ed Sobel as Vice President of Exploration and Chris Hogue as Vice President of Operations. Remember the old Zapata George adage – we don’t buy companies, we buy management. We bought into this management once before – at BlackRock – and we’re going to buy the same management this time, just with a different name over the door. It’s not the company, friends, it’s the people.

Bear in mind that this sane, well seasoned and competent management team is not taking off in a new direction. They’re doing the same thing that they did at Koch, and the same thing that they did at BVI. Heavy oil is their area of expertise, and that’s what they’re doing at Pearl – nothing new, same old story and same expert team. Another Zapata George adage… “If it ain’t broke, don’t fix it!”

The mission as it stands for Pearl is basically the same as it was for BlackRock, utilizing a three prong approach. There’s a small property that will generate cash in the short term. There’s a long term big property with a very large reserve of oil that can only be achieved through strong secondary recovery methods such as steam, but that holds vast potential. The wild card is the middle “prong” so to speak, which has yet to be identified. There is the potential for Pearl to have a scenario such as Seal was for BlackRock. Through the utilization of this “we’re not going to go out of business” philosophy, the management has shown that they can, and will, make Pearl a success. So, with a long term goal in mind and some intermediate moves that will allow for prosperity, this could go very well. Now remember folks…none of this previous paragraph came from management. These are my projections, not theirs.

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So You want to Build a Gas Sector

January 30, 2012 by  
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Investors aren’t too excited about natural gas these days.

The lack of enthusiasm is understandable, with front-month NYMEX natgas prices having sagged below $4/mcf.

But another group globally seems to be looking at gas with mounting interest. Governments.

A few data points. The Ukrainian government said today it will encourage foreign companies to explore for gas in the Black Sea shelf. The government said such gas development would be “a major improvement in our energy security.”

This seems to be a developing theme. The government of Trinidad and Tobago announced this week it is suspending development of the $600 million Alutrint aluminum smelter. Previously it was envisioned that Alutrint would be fueled by Trinidad’s abundant natural gas reserves, providing an affordable solution to the energy-intensive aluminum smelting process.

Explaining the move, the government noted that it has serious concerns as to whether aluminum-making is “the optimal use of our gas.” Domestic consumption and LNG export may be higher priorities.

Peru is yet another case in point. The nation’s first liquefied natural gas export facility came online in June, and is now on track to ship 4.4 million tonnes of liquefied gas per year.

But the development has caused a storm of protest, with some Peruvians objecting that gas is being shipped to other countries without provisions to ensure adequate supply for domestic users. The government is now looking carefully at its next moves in relation to the country’s growing gas industry.

The message is: gas is still valued and strategic, no matter how low prices get. A commodity that fires industry and heats homes is a critical one.

The question will be, how do governments ensure supplies? Draconian controls don’t work. Argentina has tried this, putting price controls and export restrictions on gas in order to secure low-cost domestic supply. The result has been that no one drills for gas in Argentina. Leading to flagging output and the need to actually import gas from neighboring nations (at high prices).

Instead, governments need to find ways that producers can make a profit while selling locally.

One way is with intelligent export quotas. Allow producers to sell a profitable amount of gas to higher-price foreign markets, subsidizing the portion sold to the domestic market. This requires government and companies to work together to determine where the breakeven price is, and what sales mix will get them above the mark.

Some nations are building this into their production sharing contracts. With the government taking a portion of produced gas, which can then be sold locally at state-mandated prices. Again, this is a good solution, provided that government take is at a level that still allows producers to make money (and thus stay in business).

It can get more creative. How about allowing producers to pay their corporate taxes with gas-in-kind? Which the government can then give back to the people.

This discussion is picking up globally. We’ll see what solutions result.

Here’s to smart supply.

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