Bad bets on oil, gas spark wave of energy-fund closures
Energy fund managers took heavy losses last year with wrong-way bets on the prices of oil and natural gas, leading to a wave of closures in the volatile fund sector. The number of active energy-focused funds fell to just 738 in 2018 through September from about 836 in 2016, according to the latest available data from hedge funds industry tracker Eurekahedge. That’s the lowest number of active funds since 2010. The number of funds solely focused on oil or gas has tumbled to 179 in 2018 from 194 in 2016. Funds that have suspended operations included high-profile names such as Jamison Capital’s macro fund, T. Boone Pickens’ BP Capital and Andy Hall’s main hedge fund at Astenbeck Capital Management, along with smaller niche funds such as Casement Capital. “There is a massive decline in the number of funds, and no replacements,” said David Mooney, founder of Casement Capital. “There has been a near ‘extinction event’ in commodities hedge funds.” “We had about 16 large hedge funds trading natural gas in Houston a few years ago,” he said. “That number is now reduced to a small number of managers.” Some funds saw investors pull out because they increasingly view energy as an unsafe spot for their money. Casement suspended operations after difficulties raising investor interest, two industry sources said. The firm was supported by Lighthouse Partners, according to a regulatory filing. Lighthouse declined to comment, and Mooney would not elaborate on the reasons for Casement’s decision to close. “All hedge funds, including commodities, that are being scrutinized for near-term performance are coming under pressure,” said Jonathan Goldberg, founder of one of the best-known energy-focused hedge funds, BBL Commodities. Closures of energy-focused hedge funds have outpaced launches in the last three years, according to data from Eurekahedge. “It becomes self-reinforcing,” Goldberg said in an interview. “If people lose money and are seeing negative feedback for it, they cut risk and it becomes harder and harder to manage the business.” Macro hedge funds – those with strategies based on broad global macroeconomic trends, such as a bet that oil prices will rise – were among the hardest hit, falling 3.6 percent in 2018. That’s the weakest annual performance since 2011, when such funds fell 4.2 percent, according to the Hedge Fund Research (HFRI) Macro index, a key industry index. Through mid-December, commodity trading advisors (CTAs) were down by 7.1 percent, according to a late December estimate by Credit Suisse. In December, Goldberg said he would wind down BBL Commodities’ flagship fund and focus instead on longer-term trading opportunities. Goldberg’s BBL Commodities Value Fund lost 14.2 percent in July, Reuters reported. Goldberg said in December that returns had been “limited” recently. BAD BETS ON OIL, GAS Funds took heavy losses this past year when oil prices took an unexpected dive beginning in October amid growing worries about oversupply and weakening demand. U.S. oilfields hit an all-time production record last year at more than 11.5 million barrels a day. A sharp rise in natural gas prices in late 2018, on concerns of tight supplies and cold weather, also added to the pain because many funds had paired bets on lower natural gas and higher crude. Fluctuations in prices typically create opportunities for fund managers to book a profit, but the moves of oil and gas prices followed a prolonged period of subdued volatility in energy markets and caught fund managers off guard. Oil prices had rallied through most of the year, and hedge funds built increasingly large bets on the rally continuing. Money managers began the year with a record number of bullish open positions in U.S. crude and largely maintained them near those levels until mid-year. That changed late last year, when the U.S. granted waivers to big purchasers of Iran’s oil after reinstating sanctions on the nation, and as the United States, Russia and Saudi Arabia all produced at record levels, feeding worries about a supply glut. The market sunk in a series of volatile trading days as funds rushed to unload positions. INVESTOR PRESSURE Hedge fund investors said they do not see the situation for niche funds improving. Among those that have been having the most difficulty are natural gas funds, said one recruiter who works with several funds and banks in the commodities industry. In November, U.S. natural gas futures experienced their most volatile streak in nine years. Velite Capital, which emerged earlier this decade as one of the most profitable natural gas hedge funds, founded by star trader David Coolidge, began winding down in August. Madava Asset Management, meanwhile, shut after investor Blackstone Group requested to pull funds, according to a Wall Street Journal report. Timoneer Energy, a hedge fund specializing in natural gas futures and options, also wound down last year, sources said. The firm was set up in 2015 by a portfolio manager and three analysts from Velite. Several former members of the fund did not respond to a request for comment. Two years ago, energy executives John James and Sachin Goel planned to launch natural gas-focused hedge fund Mercasa Energy, backed by an initial commitment of $10 million from investor Titan Advisors, which has some $4.5 billion in assets under management. But the fund was not able to secure additional investments, and by early 2018, Mercasa had shut. Titan Advisors declined to comment. Ernest Scalamandre, founder of AC Investment Management, an investment firm focused on commodities, said he expects funds dedicated to oil and natural gas to remain challenged. “I don’t envision the fundamentals changing all that much for gas and or crude,” he said.
Russia is unable to cut oil production sharply: Minister
Russia is not able to cut its oil production sharply, though it would try to do it faster, Russian Energy Minister Alexander Novak was quoted as saying by Interfax news wire on Thursday. He said there are technological limitations for reducing oil output in Russia. Earlier this week, Saudi Arabia’s Energy Minister Khalid al-Falih said Russia was cutting its oil production more slowly than expected.
S.Korea’s 2018 LNG imports to hit record high over 42 mln T
South Korea’s imports of liquefied natural gas (LNG) are set to reach an all-time high over 42 million tonnes in 2018 thanks to robust power generation demand, but next year’s shipments are likely to ebb on increased coal and nuclear power. South Korea, the world’s No.3 LNG importer after Japan and China, typically takes between 33 million and 37 million tonnes of LNG a year, mainly for heating, power generation and cooking. This year, a volume of 42.8 million tonnes of LNG is the expected intake, up 13.8 percent from 37.6 million tonnes last year, according to ship-tracking data from Refinitiv Eikon. That would top 2013 LNG import levels of nearly 40 million tonnes, the country’s customs data showed. That was the year South Korea faced a series of nuclear reactor shutdowns due to a safety scandal over faulty parts, which led to an increase in gas power generation. “Gas usage for power generation sharply rose this year because the country’s nuclear utilization rate was the lowest so other power sources like gas had to fill the void,” said Shin Ji-yoon, an analyst at KTB Investment & Securities in Seoul. In the six months of the year, an average of almost half of the country’s 24 nuclear reactors were offline for planned maintenance, according to Reuters calculations based on data from state-run Korea Hydro & Nuclear Power Co. As of now, six reactors are shut down. South Korea’s nuclear utilization rates dropped to just 63.6 percent for the first three quarters of 2018, the lowest rate ever, according to the Korea Hydro & Nuclear Power data. LNG VOLUMES EXPECTED TO BE LOWER IN 2019 Coal and nuclear together produce about 70 percent of South Korea’s total electricity needs, although the country is trying to lower its dependence on those two fuels to shift its energy policy towards cleaner and safer energy in the long term. This year, gas power’s share of the country’s power supply mix outstripped nuclear-produced electricity over January-October, according to calculations on data from Korea Electric Power Corp (KEPCO).
Oil May Never Return To The Triple-Digits
Despite the wild ride of oil prices in 2018—in which gains earlier in the year were wiped out in massive sell-offs in the fourth quarter—energy and banking professionals expect Brent Crude oil prices not to deviate too much from current levels in the next five years. The median forecast of more than 1,000 energy market professionals surveyed earlier this month expects oil prices to average between $65 and $70 a barrel in the years 2019 through 2023, the annual Reuters survey showed. For this year, the highest number of energy industry, banking, hedge fund, and physical commodities professionals, among others, expect Brent Crude prices to average $65 a barrel, unchanged from the surveys of the past three years. The over 1,000 survey respondents, 26 percent of whom are directly involved in oil and gas production, see Brent averaging $65 in 2020, too, although $70 oil is a very close second call, according to the ‘Oil price outlook survey 2019-2023’ results compiled by Reuters market analyst John Kemp. In 2021 through 2023, the average Brent price is expected at $70 a barrel. Compared to the surveys from previous years, far fewer energy professionals believe that oil prices will return to triple-digit territory in the short to medium term. Record high U.S. crude oil production has somewhat abated concerns that a supply crunch is coming in the early 2020s because of the underinvestment in conventional oil during and after the 2014-2015 oil price crash. According to the latest Reuters survey, only 3 percent of respondents see Brent Crude prices averaging above $90 next year. To compare, in the 2016 survey, a total of 13 percent of energy professionals expected oil prices to average $90 a barrel or more in 2020. In this year’s survey, the average price projection for 2023 is $70 and most of the responses ranged between $60 and $80. This forecast suggests that fewer energy professionals now fear that there will not be enough oil supply on the market over the next five years. As a whole, the energy professionals surveyed by Reuters expect Brent Crude prices will not deviate too much from the current $60 a barrel over the next five years, averaging $65 in 2019 and 2020, and $70 between 2021 and 2023. For 2019, investment banks have oil price forecasts similar to the results in the Reuters survey. After the price slump in the fourth quarter of 2018, Wall Street’s major investment banks revised down their projections, but most of them predict prices in 2019 at between $60 and $72.60 a barrel. WTI Crude price forecasts for this year range from $49 at Citi to $66.40 at JP Morgan Chase, with most estimates falling in the $55-66 range. Of course, investment banks are warning that there is high uncertainty over where oil prices will go this year. Bearish unknowns include the pace of demand growth in view of the still unresolved U.S.-China trade war (that may not be resolved at all after the trade-war truce ends in March), the rate of global economic growth, and the pace of Chinese oil demand growth. Bullish factors include OPEC and allies’ deal succeeding again in drawing down inventories, and the U.S. not renewing waivers for Iranian oil customers when the current waivers expire in early May 2019. Most recently, Goldman Sachs slashed its Brent price forecast to average US$62.50 a barrel this year, down from an earlier projection of US$70, due to abundant supply. WTI will average US$55.50 a barrel in 2019, compared with an earlier estimate of US$64.50 a barrel, according to Goldman Sachs. Bank of America Merrill Lynch kept its $70 price forecast for Brent this year, expecting OPEC+ cuts to reverse the oversupply from the fourth quarter of 2018 into a “slight deficit” in 2019. BofAML, however, cited one key uncertainty about oil prices this year—a slowdown in global economic growth to 2 percent from 3.5 percent could result in Brent plummeting to as low as $35 a barrel. While in the base-case scenario, energy professionals and investment banks don’t see 2019 oil prices deviating too much from current levels, they warn that the key bearish concern in the oil market over the past few months—a possible global growth slowdown—could put downward pressure on the price of oil.
GAIL plans to terminate Rs 270 crore IL&FS contract
GAIL is planning to terminate Rs 270 crore pipe laying contracts it awarded IL&FS last year as the financially-troubled contractor is unable to make progress, delaying the Prime Minister’s pet pipeline project that would take natural gas to much of eastern India via his constituency Varanasi, sources said. GAIL is building the 2,655-km natural gas pipeline, called Pradhan Mantri Urja Ganga, which crosses Uttar Pradesh, Bihar, Jharkhand, West Bengal and Odisha and connects several key cities on the way. The pipeline, whose completion is crucial to the planned revival of three fertilizer units in Uttar Pradesh, Bihar and Jharkhand, will also introduce millions of homes, vehicles, shops and factories to the cleaner fuel. IL&FS Engineering and Construction Company Ltd, a unit of the troubled IL&FS, had won two contracts last year to lay pipelines: 160 km in the Dobhi-Durgapur stretch and 100 km in the Bokaro-Angul stretch of the Urja Ganga project. Other contractors have the mandate for the remainder of two stretches, which are together about 850 km long. The 260-km pipeline contract is worth about Rs 270 crore. Gail had aimed to ready the two stretches by the end of 2019 but IL&FS’ sluggishness could become a hurdle. GAIL is planning to take away the two contracts from IL&FS and award these to others for speedy completion of the project, a source said, adding that fresh tenders for the two stretches will be issued by the end of next month. “Due to its financial crisis, IL&FS is unable to pay its subcontractors and suppliers. So, these sub-contractors have stopped working and vendors have stopped supplies. This can delay the entire project,” the source said. Some IL&FS executives linked to the two contracts have also quit, sources said. IL&FS declined to comment for the story. The problem began in November, and GAIL has since written multiple letters to IL&FS and held meetings with its executives to sort this out. GAIL has now concluded that new contractors will have to be brought in to meet project deadlines, sources said IL&FS Loses Zojila Tunnel Contract New Delhi: tate-owned NHIDCL has terminated the contract awarded to troubled IL&FS group for building the strategic Zojila tunnel to provide all-weather connectivity between Srinagar, Kargil and Leh. IL&FS Transportation in a filing said the contract was terminated on January 15. The National Highways & Infrastructure Development Corporation Ltd (NHIDCL) is likely to invite fresh bids for the tunnel project in Jammu & Kashmir, according to officials. “The contract awarded for construction, operation and maintenance of 2-Lane Bi-Directional Zojila Tunnel awarded by NHIDCL in the state of Jammu & Kashmir has been terminated effective January 15, 2019,” IL&FS Transportation said in a BSE filing.
Thailand’s PTT to start LNG desk in Singapore to expand trading
Thailand’s state energy firm PTT is planning to start a liquefied natural gas (LNG) desk in Singapore to expand its trading activities of the super-chilled fuel, two sources familiar with the matter said on Thursday. Thailand is in the midst of liberalising its power sector to boost competition in the domestic market. The southeast Asian country relies mainly on natural gas to generate power but domestic supply is falling behind consumption, requiring the country to import more LNG. PTT is planning to set up the desk next month by hiring at least one LNG trader and an operations staff, the sources said, declining to be identified as they were not authorised to speak with the media. The company has hired Daisuke Matsuoka to join its Singapore office, one of the sources said. Matsuoka was most recently an LNG trader with Japanese trading firm Itochu Petroleum and with Royal Dutch Shell Plc and BG Group before that, according to his LinkedIn profile. He will be handling imports of LNG into Thailand, trading of the fuel and “origination”, the source said, referring to a commercial role handling deal flow into trading desks. PTT did not reply to an email requesting comment. Thailand’s LNG imports are expected to more than double over the next five years from about 5 million tonnes per year currently, driven by rising import dependency amidst declining domestic gas production. PTT is currently the country’s sole gas supplier and its only LNG importer, but state-run Electricity Generating Authority of Thailand is expected to start imports this year. PTT’s Singapore office has more than 60 staff and trade in oil and other commodities, the second source said. LNG is natural gas cooled to minus 162 degrees Celsius (minus 260 degrees Fahrenheit) which condenses the fuel into a liquid for easier storage and transportation by ship.
East Timor clears rules for Sunrise gas project takeover after parliament backing
East Timor’s president has approved a decree allowing use of the country’s petroleum fund for a $650 million buyout of Royal Dutch Shell and ConocoPhillips’ holdings in the Greater Sunrise gas project, a proposal he had vetoed in December but which subsequently won overwhelming parliamentary backing. Under East Timor law, the president can veto a bill once, but must then ratify it if the bill wins a parliamentary vote of approval. Purchases of the Shell and ConocoPhillips holdings would give East Timor a majority stake in the project, along with remaining partners including Australia’s Woodside Petroleum and Japan’s Osaka Gas. In December, President Fransisco Guterres vetoed the decree saying it could allow the petroleum funds to be misused, and called for the proposal to be revised. The decree removes a 20 percent cap on state participation in oil projects, and allows Sunrise and other projects to bypass approvals by parliament in future. But Guterres “promulgated” the decree on Thursday as required by law, according to a statement from his office. “There was no change in its wording, as previously submitted for promulgation,” said the statement from Guterres’ chief of staff, Fransisco Maria de Vasconcelos. The president’s approval of the decree “does not mean a political or legal judgment favourable to said decree,” Vasconcelos said. Discovered in 1974, the Greater Sunrise fields, which hold around 5.1 trillion cubic feet of gas, straddle the maritime border between Australia and East Timor, and a dispute over the border has delayed the project’s development.
India’s natural gas production increased marginally in November
India’s domestic natural gas production increased marginally by 0.62 per cent to 2,731.79 million standard cubic meter (MMSCM) in November 2018, as compared to the corresponding month a year ago. This was primarily due to increase in production from oil and gas fields operated by Oil and Natural Gas Corporation (ONGC). India’s domestic natural gas production in November 2017 stood at 2,714.86 MMSCM. Cumulatively, India’s natural gas production during the April-November period of financial year 2018-2019 fell 0.69 per cent to 21,783.74 MMSCM, as compared to 21,936.16 MMSCM produced in the corresponding period a year ago. The fall was due to lower natural gas production from fields operated by government-owned Oil India and private operators/joint ventures. ONGC ONGC, India’s largest producer of crude oil and natural gas, witnessed its natural gas production increase 6.84 per cent to 2,091.44 MMSCM in November due to increase in production from its offshore and onshore fields. ONGC’s natural gas production from offshore fields increased 8.59 per cent to 1,617.54 MMSCM in November, as compared to 1,489.56 MMSCM produced in the corresponding month a year ago. The company’s natural gas production from onshore fields increased marginally by 1.25 per cent to 473.89 MMSCM in November, as compared to 468.02 MMSCM produced in the corresponding month a year ago. Cumulatively, ONGC’s natural gas production during the April-November period of financial year 2018-2019 increased 3.64 per cent to 16,219.29 MMSCM as compared to 15,650.38 MMSCM produced in the corresponding period a year ago, because of increase in production from the company’s offshore fields. According to information published on the oil ministry’s website, ONGC’s natural gas production witnessed a shortfall against the monthly November target due to: Restricted gas production from eastern offshore, less than planned production from WO-16 and B-127 fields due to the absence of mobile offshore production units, Sagar Samrat and Sagar Laxmi, and decline of pressure/potential in GS-4 gas cap reservoir in Gandhar. Oil India Oil India’s natural gas production in November declined 3.66 per cent to 226.88 MMSCM, as compared to 235.50 MMSCM produced in the corresponding month a year ago. The decline was due to lower production from the company’s fields in Assam and Arunachal Pradesh. Cumulatively, Oil India’s natural gas production in the April-November period of financial year 2018-2019 declined 6.73 per cent to 1,828.14 MMSCM, as compared to 1,960.01 MMSCM produced in the corresponding period a year ago. According to oil ministry’s website the decline in Oil India’s natural gas production could be attributed to lower gas production potential because of loss of production from few high production wells in Deohal area (corrosion due to carbon dioxide). Private operators/joint ventures Natural gas production from fields operated by private operators as well by joint ventures (JVs) declined 20.76 per cent to 413.47 MMSCM in November, as compared to 521.80 MMSCM produced in the corresponding month a year ago. The decline was due to decline in coal-bed methane (CBM) production and also from offshore fields. Natural gas production from fields operated by private operators/JVs in the April-November period of financial year 2018-2019 declined 13.63 per cent to 3,736.31 MMSCM, as compared to 4,325.78 MMSCM produced in the corresponding period a year ago. According to oil ministry’s website, the decline in production could be attributed to: Under-performance of CBM wells at RIL’s Sohagpur west due to constraints imposed by IFFCO on CBM off-take, less off-take by buyer from Focus Energy’s RJ-ON/6 block as well as low gas production due to stuck up in two wells.
Pertamina’s gas production up 51 per cent in 2018: Director
Gas production by Pertamina, Indonesia’s state-owned energy company, soared 51 per cent to 3,064 million cubic feet per day (MMCFD) in 2018 from 2,035 MMCFD in 2017, a company director said on Thursday * Meanwhile, Pertamina’s crude oil output increased 15 per cent to 392,000 barrels per day in 2018 from 342,000 bpd in 2017, upstream director Dharmawan Samsu told reporters
CNG supply in Patna from next month
The supply of compressed natural gas (CNG) is likely to begin in the city from the first week of February as soon as three stations at Naubatpur, Raja Bazar and Bypass Road become operational. According to Gas Authority of India Limited (GAIL) sources, piped natural gas (PNG) will also be supplied to hospitals and institutes like AIIMS-P and BIT-P as well as houses on Jagdeo Path and Bailey Road for domestic use from next month. An official order was issued on Monday for transferring 1.5 acres of land of a depot of the Bihar State Road Transport Corporation to the GAIL for setting up a control room for CNG supply in the city. Speaking at the launch of an oil and gas conservation awareness drive, christened ‘SAKSHAM-2019’, which was organized by the Indian Oil Corporation in association with Petroleum Conservation Research Association, transport department secretary Sanjay Kumar Agarwal said, “Once the control room is set up and the three supply stations become operational, we will introduce CNG-aided autos which will help curb pollution.” Agarwal also flagged off a conservation walk and cycle rally to create awareness among Patnaites about the need to conserve non-renewable resources that are depleting rapidly. Deputy chief minister Sushil Kumar Modi had recently claimed that approximately 5,500 households in the city were connected with PNG infrastructure. The project of supplying PNG and CNG is part of the Jagdishpur-Haldia-Bokaro-Dhamra pipeline project under the Pradhan Mantri Urja Ganga Yojana which will connect the eastern and north-eastern states to the national gas grid. CNG and PNG are eco-friendly, convenient and economically cheaper compared to conventional fuels like LPG and petroleum. CNG-aided vehicles run in cities like New Delhi, Mumbai, Pune and Ahmedabad and Patna will join the club soon.