News

Natural gas futures fell, dropping to an 11-week low for a second day, as forecasts for an end to below-normal temperatures across most of the U.S. indicate reduced heating-fuel demand.

Milder-than-normal weather will reach into the Midwest and normal temperatures will return to Texas and much of the East Coast starting March 5, forecasters said. About 52 percent of U.S. households rely on gas for heating.

LNG Production

Exxon Mobil Corp., Royal Dutch Shell Plc and Total SA are partners in projects in Qatar, Yemen, Nigeria and Norway. "I expect a year of smashing records in terms of LNG imports," Chris Kostas, an analyst with Energy Security Analysis Inc. in Wakefield, Massachusetts, said in a telephone interview. "A lot of liquefaction has come on already and more will come on in 2010."

LNG imports set a record of 770.8 billion cubic feet in 2007, according to the Energy Department. The spread in gas prices between the U.S. and the U.K. is favorable for North America later this year, Kostas said. Gas for delivery in July in the U.S. went for about $5.03 per million Btu today compared with the equivalent of $4.72 at the main U.K. trading hub, according to data compiled by Bloomberg.

Supply Outlook

Stockpiles will end the winter heating season in the U.S. between 1.5 trillion and 1.6 trillion cubic feet, keeping a lid on prices, Kostas said. Inventories at the end of March over the past five years have averaged about 1.5 trillion cubic feet.

Natural gas will probably hold support at $4.50 per million Btu as a contango in prices between now and next winter encourages purchases that are put in storage, he said. A government report on Feb. 25 will probably show that gas supplies fell more than average as cold weather lifted demand.

The Energy Department may say inventories dropped 169 billion cubic feet last week, based on the median of 10 analyst estimates compiled by Bloomberg. The five-year average decline for the week is 132 billion cubic feet. Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana fell 0.74 cent, or 0.2 percent, to $4.9106 per million Btu, according to data compiled by Bloomberg.

Gas futures volume in electronic trading on the Nymex was 168,231 contracts as of 2:50 p.m., compared with a three-month daily average of 240,000. Volume totaled 236,007 yesterday. Open interest was 805,232 contracts, compared with the three-month average of 747,000. The exchange has a one-business-day delay in reporting open interest and full volume data.

U.S. gasoline demand plunged to the lowest level in 16 months last week as record winter snowstorms kept drivers off the roads from Texas to New England, MasterCard Inc. said.

Motorists bought an average 8.84 million barrels of gasoline a day in the week ended Feb. 12, MasterCard, the second-biggest credit-card company, said in its SpendingPulse report. Consumption was the lowest since Oct. 10, 2008, when supplies were limited by two Gulf Coast hurricanes and the U.S. economy was spiraling into the worst recession since the 1930s.

"It’s a combination of short-term and long-term factors" reducing demand, said Sander Cohan, an analyst with Energy Security Analysis Inc. in Wakefield, Massachusetts. "Major snowstorms cutting off a part of the country that typically doesn’t have snow is a major driver. This is typically the low point for gasoline demand. And, while we’re coming out of an economic rut, we’re not out of the woods yet."

Back-to-back blizzards dumped almost 55 inches of snow in Washington last week, closing federal offices for four days. The Dallas-Fort Worth area set a 24-hour snowfall record in the period ended Feb. 12 as winter storms threatened the Deep South and the Northeast was digging out from under a foot of snow.

Gasoline use fell 3.9 percent in New England, 1.1 percent in the Midwest, 1 percent on the West Coast and 0.9 percent on the Gulf Coast. The only gain was in the Lower Atlantic region, where demand rose 2.8 percent.

Demand fell 2.5 percent from the prior week and has dropped 6.1 percent in two weeks. Demand for the past four weeks was 9.18 million barrels a day, up 0.4 percent from a year earlier. The national average pump price for regular gasoline fell 3 cents to $2.62 a gallon. Prices are 35 percent above a year earlier.

The report from Purchase, New York-based MasterCard is assembled by MasterCard Advisors, the company’s consulting arm. The information is based on credit-card swipes and cash and check payments at about 140,000 U.S. gasoline stations.

"Scatter Shot Reform: Fuel Engine Pathways for Automotive Transportation: 2010-2025" is a recent report by Energy Security Analysis Inc. that analyzes how transportation fuels will develop in coming decades.

The report’s executive summary says competing sometimes conflicting reform will result in "a vastly different fuels landscape than the comparatively simple gasoline and diesel market in place today." ESAI believes the emergence of vehicle fuel technologies will develop slowly and haphazardly.

"The overarching conclusion of this study is that environmental reform will result from a mosaic of provincial, national, and regional initiatives," the report said. "ESAI believes that the scatter shot approach described in this study illustrates the likely evolution of future developments in climate change policy."

"While international negotiations such as those in Kyoto or Copenhagen will serve a purpose in aligning benchmarks, the future of climate policy will unfold not on the global stage, but on the national and regional stage."

ESAI , a Boston area energy research and consulting firm, notes that the changing transportation fuels business presents opportunities for oil companies, some of whom already are partnering with new energy companies developing breakthrough technologies.

A steep drop in crude-oil prices triggered declines across the commodities spectrum, as investors nervous about the pace of the economic recovery gravitated back to the dollar.

Crude fell 2.7% to $71.19 a barrel Friday. Here, PTT Exploration & Production operators collect oil samples in Thailand this past week.

The week's wild commodity price swings underscore how investors aren't totally committed to betting that the world economy is on an upward track.

Commodities rose steadily last year in anticipation of strong growth in 2010; now, many investors fear commodities pose too big a risk amid the uncertain outlook.

In the meantime, markets are in flux—shooting higher on Monday and Tuesday on a few positive economic indicators, and tumbling on Thursday and Friday when the news turned sour.

"Volatility now is here to stay, it's something we're going to have to learn to live with," said Rick Mueller, director of oil markets at Wakefield, Mass., consultancy Energy Security Analysis.

The rush to the exits Friday began when oil prices fell below the 2010 low of $72.43 a barrel. Prices managed to bounce back from around that price three times in the past week, including during Thursday's steep slide. But on Friday, support crumbled amid concerns about weak oil demand in what is shaping up to be a slow economic recovery.

The breach triggered numerous automatic orders to exit trading positions many investors set up around certain price milestones. Within minutes, oil prices had tumbled to $69.50 a barrel, the lowest since Dec. 15.

Prices mounted a partial recovery, with the March futures contract settling at $71.19 a barrel on the New York Mercantile Exchange, down $1.95, or 2.7%. Crude is down 14% since the 2010 closing high of $83.18 reached on Jan. 6.

As refineries from New Jersey to New Mexico close at the fastest pace in three decades, traders in Singapore are profiting from a new plant on India’s west coast and a ship heading for Florida filled with jet fuel from Taiwan.

The so-called refinery crack spread in Singapore, representing the value of fuels minus the cost of crude oil, may climb 50 percent to as much as $4.50 a barrel this year, according to a Bloomberg News survey of five analysts. U.S. refinery margins will drop 30 percent by December, futures contracts on the New York Mercantile Exchange show.

That means higher profits for oil companies and traders in Asia, where consumption is growing 13 times faster than in Europe and the U.S. That’s also why Morgan Stanley can buy jet fuel in Taiwan and ship it 11,500 miles to Port Everglades, Florida, and still make money.

Oil consumption in Asia will grow 3.3 percent this year, compared with 0.26 percent in Europe and the U.S., where no new refineries have been built since 1976, according to the International Energy Agency in Paris. North American refiners will leave about 25 percent of plants idle by 2014, the IEA forecast in June.

Low Rates

"Asia is really the only one with all the economies pulling out of the recession and with industrial activity increasing," said Vivek Mathur, an analyst focusing on Asian oil and petrochemicals at Energy Security Analysis Inc., a Wakefield, Massachusetts-based energy research firm. "The overarching view is that this increasing economic activity is bolstering crack spreads."

The Organization of Petroleum Exporting Countries cut crude-oil production in January for the first time in five months, a Bloomberg News survey showed.

Output declined 45,000 barrels a day last month to an average 28.955 million, according to the survey of oil companies, producers and analysts. The 11 countries with quotas, all except Iraq, pumped 26.64 million barrels a day, 1.8 million above their target. All members exceeded their allotted production limits.

OPEC cut output quotas by 4.2 million barrels to 24.845 million barrels a day beginning in January 2009 as fuel demand tumbled during the worst global recession since World War II. The group left the targets unchanged at a Dec. 22 meeting in Luanda, Angola.

Crude oil futures have more than doubled from a four-year low of $32.40 a barrel touched in December 2008, which caused OPEC to curb production. March crude traded at $73.26 a barrel on the New York Mercantile Exchange at 7:19 a.m. local time today, near a one-month low.

The 11 OPEC members with quotas had collectively completed 57 percent of the promised 4.2 million barrel-a-day reduction in January, about the same as December, according to Bloomberg estimates. Iraq is the only OPEC member without a quota.

Nigeria's output rose 20,000 barrels to 2.025 million barrels a day, the highest level since March 2008. Africa's biggest oil producer exceeded its target by 352,000 barrels a day. A cease-fire and amnesty agreement with the Movement for the Emancipation of the Niger Delta, the country's main militant group, allowed the country to increase production.

"Nigeria has never been one of the strongest in adhering to quotas," said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. "OPEC has really dodged a bullet in recent years, with the problems in the delta forcing Nigeria to adhere more than would otherwise have been the case."

Royal Dutch Shell Plc's Nigerian unit halted some flow stations in the country's southern oil region after sabotage caused a pipeline leak that was detected Jan. 30.

"We have shut in some flow stations which produce into the line and the leak has stopped," Precious Okolobo, Shell's spokesman in Nigeria, said today in an e-mailed statement. "Repair work will commence as soon as possible."

OPEC's next policy-setting meeting will be on March 17 in Vienna. The group's other members are Angola, Ecuador, Iran, Kuwait, Libya, Qatar and the United Arab Emirates.

Crude futures sank to a one-month low Friday as a big expansion in U.S. gross domestic product failed to register with a market still grappling with weak oil demand.

Light, sweet crude for March delivery settled 75 cents, or 1%, lower at $72.89 a barrel on the New York Mercantile Exchange. Futures ended lower for the seventh time in the past eight sessions. Brent crude on the ICE futures exchange settled 67 cents, or 0.9%, lower at $71.46 a barrel.

The Commerce Department's report of a 5.7% expansion in GDP during the fourth quarter failed to dig the oil market out of its three-week rut.

The GDP growth was more than forecasters had anticipated, but came mostly from businesses restocking inventories after letting stocks run down during the recession. Once the inventory effect fades, the growth rate could slow.

"There is an understanding that this is probably a one-off strong quarter," said Rick Mueller, director of oil markets at Energy Security Analysis Inc., a consultancy in Wakefield, Mass. "I don't think anyone thinks we're really out of the woods yet."

Consumer spending, which has a greater impact on oil demand than shifts in business inventories, contributed only 1.44 percentage points of the GDP increase. That figure confirmed to many in the oil market why U.S. demand hasn't risen at anywhere near the pace of GDP.

Russia is starting to shake up markets with its new ESPO-blend crude-oil sales from the Pacific coast, as its proximity to local markets gives it a sharp competitive edge against similar grades from West Africa, the Middle East and Latin America. Likely strong Asian demand for the crude, delivered through the new East Siberian-Pacific Ocean pipeline, is expected to double Russian crude sales to the region this year and give it an important new outlet away from its traditional export routes via Europe.

However, a government proposal to repeal tax breaks on crude oil produced in East Siberia may reduce its appeal.

On Friday, Russian Finance Minister Alexei Kudrin suggested revoking the concession, to release more funds for the federal budget. The exemption was introduced late in 2009. Scrapping it would be opposed by Vice Premier Igor Sechin, Energy Security Analysis, Inc. analyst Andrew Reed said, adding: "I do not believe the tax exemption for East Siberian crude exports will become permanent, but I do think it will stick around for a couple of years."

Vienna-based consultancy JBC Energy said in a Jan. 25 note that "the duty exemption alone would cost the Russian budget at least 120 billion rubles of unrealized profits this year." ESAI's Reed said Russian crude exports are expected to surge by nearly 50% on year in 2010 to 700,000 barrels a day, with ESPO contributing 240,000 barrels a day of this. The East Siberian crude is for now piped to Skovorodino near the Chinese border, and then sent by train to a new export terminal at the Pacific port of Kozmino.

A spur line to pipe another 300,000 barrels a day of crude from Skovorodino to Daqing, China, should be ready late this year. By 2013, the 900,000 barrels-a-day capacity pipeline should reach the Pacific terminal. It takes some five days to ship oil from Kozmino to North Asian states, reducing time and shipping costs from the minimum two weeks needed from the Middle East, Africa and Latin America.

ESAI's Reed said restoring the ESPO export duty would add $37 a barrel to current prices, reducing the netback on crude exports to $19 a barrel. And without transport subsidies, its delivery cost will be higher than that of competing suppliers even though Russia is closer to the Asian market, he said.

The International Energy Agency said ESPO's subsidized transportation tariff is $7.28 a barrel, less than half of the actual cost. Since exports started in December, the medium, sweet grade has elicited strong interest from trading companies, but a lack of precise fuel specifications has been keeping refiners at bay. GS Caltex may be the first Asia refiner to have bought a cargo, suggesting end users' uncertainty about ESPO is diminishing, traders say, although the company won't officially confirm this. The company, South Korea's second-largest refiner by capacity, bought 100,000 metric tons from Japanese trader Mitsubishi Corp. (8058.TO), traders say.

The crude has an API of around 34 and a sulfur content of 0.5%, falling between medium, sour Urals and Siberian Light, a trader familiar with the grade said. Russia plans to export eight 100,000-metric-ton cargoes from Kozmino in February--equivalent to around 210,000 barrels a day, or two-thirds of a targeted 300,000 barrel a day output. Sellers include OAO Rosneft (ROSN.RS), Gazprom, TNK-BP Holding (TNBP.RS) and Surgutneftegaz JSC (SNGS.RS) while trading houses--Finland's IPP OY, Russia's Crudex, Trafigura, Mitsubishi, Vitol and Petronas--have bought ESPO, traders said.

London—Russian oil exports to Asia are set to more than double over the next five years, reaching more than 1 million b/d by 2014, US-based analysts at Energy Security Analysis Inc said January 21. The increase is mainly due to the startup late last year of the ESPO pipeline designed to export crude from East Siberia to Asian markets via Russia’s Pacific Ocean coast, ESAI analyst Andrew Reed said in a presentation via the internet.

At the same time, shipments to Russia’s traditional export market in Europe are set to decline by around 500,000 b/d, with the fall mainly coming from the Black Sea, Reed said, adding that Russia was about to undergo a "rapid shift" in the location of its oil production and exports.

The first phase of the ESPO pipeline started operations in December 2009, and will see up to 300,000 b/d of crude exported from a new terminal at Kozmino on the Pacific coast. Volumes from Kozmino are expected to average 240,000 b/d this year, rising to 300,000 b/d in 2011 and 2012 before future expansions allow an increase to 350,000 b/d in 2013 and to 400,000 b/d in 2014.

At the same time, a branch of the ESPO pipeline running south will allow overland exports to China to rise from 199,000 b/d in 2009 to 300,000 b/d by 2011, sustaining that volume through 2014.

The other main source of Russian crude exports to Asia is from oil fields around Sakhalin island, from where exports are seen rising from 277,000 b/d in 2009 to 330,000 b/d by 2014.

ESPO crude is likely to compete in the Asian market with West African grades in particular, and, to a lesser extent, Middle Eastern oil, Reed said. China is likely to be most obvious market for ESPO crude, as the Russian crude can replace China’s falling domestic production and it is also well suited to the country’s refineries. "It is not a great match for countries like Japan, which have desulfurization capacity. However, supply diversification is attractive," Reed said.

Despite the geographical advantage ofbeing closer to the Asian refiners than the competing suppliers, the delivered cost of ESPO crude will be higher than that of West African or Middle Eastern crude, Reed said, because of the higher production costs in West Siberia and the pipeline tariff involved.

Reed declined to describe ESPO as a "game-changer" for the Asian oil market, noting that the total Russian export volume of 1 million b/d would still only be a relativel small proportion of the total Asian market of around 29 million b/d.

While exports to Asia are rising, shipments to Europe are expected to fall, he said. Volumes of Russian oil coming out of the Black Sea are expected to drop from 1.89 million b/d in 2009 to 1.59 million b/d in 2014, with shipments along the Druzhba pipeline falling from 1.195 million b/d to 750,000 b/d.

Offsetting this, Baltic Sea exports are expected to rise from 1.4 million b/d to 1.7 million b/d, mainly thanks to expansions at Primorsk and Ust-Luga, but this is not enough to stop overall exports to Europe declining from 4.934 million b/d in 2009 to 4.43 million b/d in 2014. With much of the new Russian oil exports comprised of new crude streams such as ESPO and Sakhalin, the dominance of the country’s traditional medium-sweet Urals blend is waning, Reed said.

Urals crude made up 73% of the total volume of oil exported by Russia in 2009, including oil of Kazakh origin passing through Russia. By 2014 this proportion is set to fall to 61%, he said. "It is just a matter of time before less than half the exports coming out of Russia are Urals medium sour," he said. This shift is likely to be bullish for Mediterranean crude market fundamentals, he said, although this is offset by declining overall demand for oil in Europe.

Russian crude output is likely to be flat at 10 to 10.1 million b/d between 2010 and 2014. And despite the higher flows to Asia, total crude exports are expected to peak this year at 5.52 million b/d and decline 150,000 b/d by 2013, before rebounding somewhat in 2014, Reed said.

An Energy Department report tomorrow will probably show that crude oil supplies climbed 2.4 million barrels in the week ended Jan. 15 from 331 million the prior week, according to the median of 17 analyst responses in a Bloomberg News survey. Gasoline supplies rose 2 million barrels, the survey showed.

"The last few inventory reports have been pretty bearish, and it looks like that will also be the case tomorrow," said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts.

Chevron Corp., the second-biggest US oil company, said last week that fourth-quarter refining earnings were ``sharply lower'' than in the July-to-October period.

Four expatriate oil workers kidnapped by gunmen in Nigeria last week were freed yesterday. Violence in Nigeria, Africa's biggest oil producer, has cut more than 20 per cent of the country's crude production and deterred investment since 2006.

"What little oil-related news there is today is bearish," Mueller said. "The kidnapped oil workers in Nigeria were released, which may signal that the situation is calming down."

Brent crude oil for March settlement declined $US1.54, or 2 per cent, to $US76.09 a barrel on the London-based ICE Futures Europe exchange.

DJ MARKET TALK: China To Drive Asia Naphtha Demand Growth - ESAI

China will drive Asia's naphtha demand growth this year, predicts Energy Security Analysis, Inc. In 2010, China will bring nearly 3.5 million tons annual ethylene production capacity online, naphtha feedstock requirement will grow by 240,000 B/D, according to the research firm; at the same time, South Korea, Japan's naphtha demand will fall by 20,000 B/D, 25,000 B/D, respectively, as crackers in two countries will be forced to cut operation rates due to more downstream competition from China, Middle East.(MAX)

High-voltage power-line projects are becoming the latest victims of slumping power demand.

Three major transmission projects in the nation's largest power market face new questions about their need as the economic downturn, growing power-curtailment programs and electricity conservation curb demand-growth projections. Two of the projects in the PJM Interconnection, a 13-state power market in the eastern U.S., have been put on hold. A third faces additional scrutiny from regulators.

The opportunities for utilities to boost returns through transmission projects remain as the U.S. looks to upgrade its aging electric grid and access growing amounts of wind and other renewable generation from mostly rural areas. But reliability projects - built to relieve strains on congested high-voltage lines - could face growing delays following a two-year slump in demand.

"There is certainly potential for the projects to be pushed back," said Paul Flemming, director of power and gas services at Energy Security Analysis Inc., a Wakefield, Mass., market research firm.

Possible delays have emerged in recent weeks after PJM provided a preliminary outlook of updated transmission needs to Virginia regulators. In response, Allegheny Energy Inc. (AYE) and American Electric Power Co. Inc. (AEP) withdrew an application in the state for a $1.8 billion transmission line from West Virginia to Maryland. The utilities had believed the 275-mile line would be needed by 2012 or 2013, but it now looks like 2016 is a more likely date.

The move prompted Pepco Holdings Inc. (POM) to ask Maryland regulators Friday to suspend a review of a 150-mile, $1.2 billion transmission line through the state. Approvals for both projects are on hold until PJM completes a more comprehensive study by early summer. At the same time, New Jersey regulators are delaying a vote on the state's section of a nearly $1.3 billion line proposed by Public Service Enterprise Group Inc. (PEG) and PPL Corp. (PPL) as they review the recent developments.

Transmission projects are tempting for power companies because of the favorable returns allowed by federal regulators and the straightforward nature of their construction. Winning support from landowners - and the elected officials who represent them - traditionally has been the major hurdle in developing new lines.

But in the last two years the recession has sapped power demand as industrial production slowed and some households cut back. Although demand is expected to grow this year, U.S. electricity consumption dropped for two straight years and growth in demand peaks that often drive infrastructure projects slowed.

In PJM, some states have stepped up conservation programs, while the number of businesses willing to curtail use at times of peak demand has grown considerably. Environmental groups point to the demand-side gains when arguing against the three transmission projects. They warn the projects could provide a means to bring cheaper, but emissions-heavy, power generated by coal-fired power plants in the Midwest and Southeast to markets in the Northeast.

PetroChina's move to take a big position in Caribbean oil storage should give the state oil company immediate muscle in the region's residual fuel trade and open up longer-term options for crude trading.

PetroChina's assumption this week of Saudi Aramco's lease on 5 million barrels of oil storage capacity at the strategically located Statia terminal in the Caribbean signaled its intent to build a global oil trading network.

The NuStar Energy LP Statia terminal on the Dutch Caribbean island of St Eustatius can handle the largest oil tankers. It is just a few days sail from major US refining and transport hubs on the Gulf Coast.

The Caribbean is growing more important as an oil trading center with the emergence of a possible new sour crude benchmark in the Argus Sour Crude Index. Still, sources say PetroChina's initial focus probably is on shorter-term marketing goals that will make it a major player in the Caribbean "bunker", or ship fuel, market. "It will mostly be used for fuel oil or bunkers but may also be used for crude in the future," said a PetroChina trading official.

Fuel oil is China's most widely imported oil product. It is burned in power plants, ships and processed by China's small privately owned "teapot" refineries. Venezuela has emerged as China's biggest supplier of fuel oil as President Hugo Chavez looks to shift the country's oil marketing efforts away from the United States, even though the Caribbean nation lacks access to Pacific ports.

But the fuel oil market in Asia is becoming more competitive as demand growth eases and traders fight for market share. Analysts say economies of scale are needed to weather the downturn, driving the expansion of regional players into other markets such as the Middle East and India. "It's in the center covering both North and South America. If you look at the bunker market alone, it's huge," said another Beijing-based PetroChina executive. Underscoring PetroChina's eagerness to expand its reach in the Caribbean residual fuel market, the company is reportedly in talks with US refiner Valero to acquire its shuttered refinery on the island of Aruba.

The Aruba refinery mainly produces fuel oil and unfinished feedstocks, making it potentially an excellent source of fuel oil blendstocks for the Statia terminal.

But regardless of PetroChina's short-term plans for the Statia terminal, some oil traders and analysts believe it is only a matter of time until the state-backed company begins to use it as part of a crude oil trading network. PetroChina began building a presence in the giant US physical crude markets several years ago. But with little of its own production in the region it may be some time until the PetroChina plays a bigger role in regional crude markets.

"Without equity crude it would not make business sense to use the terminal as a crude oil staging point ... the margins would be minimal," said Sarah Emerson, director of Energy Security Analysis Inc in Boston.

However, PetroChina is among the companies interested in Venezuela's Orinoco heavy oil belt, which could give it significant crude oil production in the Caribbean basin toward the end of the decade.

The widening of the Panama Canal later this decade will also alter the dynamics of the Caribbean market, making it more responsive to market forces in the Pacific. The $5.25 billion expansion of the Panama Canal will allow the waterway to handle Suezmax ships, which can carry up to 1 million barrels of crude, when completed in 2014. It is expected to open up new trade flows for crude oil shipments from West Africa and bolster the role of Caribbean storage in the portfolio of global oil traders.

The two‐week UN Climate Change Conference in Copenhagen closed on 18 December without a binding agreement, although the summit agreed on a long term target of reducing emissions enough to hold the rise in global temperature to 2°C. International Energy Agency (IEA) Executive Director Nobuo Tanaka had presented the conference with the agency’s plan for limiting energy‐related emissions to achieve the 2°C goal (MEES, 21/28 December 2009).

However, the IEA issued a statement on 22 December saying: "The IEA welcomes the Copenhagen Accord, which provides guidance on the next steps towards a legally‐binding agreement on climate change. The accord provides a clear environmental goal of limiting the increase in global temperature to 2°C. It calls for emissions to peak as early as possible as well as a collective commitment by developed countries to financially support developing country actions in mitigation and adaptation. It also lays out the foundation for support to developing country actions, over and above their unilateral actions. The IEA estimates that developing countries will need to invest around $200bn annually by 2020 to move to a less carbon‐intensive energy system. The $100bn pledged by developed countries is a significant contribution towards that goal. However, IEA calculations show that emission reduction pledges to date fall short of what is needed to limit the long‐term concentration of greenhouse gases in the atmosphere to 450 parts per million of CO2‐equivalent, in line with a 2°C increase."

Energy Security Analysis Inc (ESAI) analyst Sander Cohan said in a 21 December Occasional Memo that the non‐binding nature of the agreement was a major shortcoming. "From a global perspective," he warned, "a voluntary agreement undercuts the UN’s leadership in pushing major emitting nations to enact climate change. Ultimately, there is no mechanism for authority, and no punishment for ignoring international norms. Even if competing economies implement their climate change plans, there is limited transparency to ensure that these plans are enforced and managed effectively. In addition to creating a vacuum in global leadership, the non‐binding treaty is a disincentive for individual nations to enact carbon legislation."

For more info from ESAI, contact skanlier@esai.com

Natural gas futures fell Tuesday as uncertainty over heating demand in the weeks ahead put pressure on prices.

Natural gas for January delivery on the New York Mercantile Exchange was trading 8.7 cents lower, or 1.53%, at $5.582 a million British thermal units. Prices fell as low as $5.531/MMBtu in morning trading.

Temperature forecasts are watched closely since heating demand by homes and businesses is a major driver of gas consumption. The National Weather Service is predicting below-normal temperatures along the U.S. eastern seaboard from Dec. 29 to Jan. 4, while Midwestern states are expected to have normal temperatures. As for the month of January, private forecasting firm WSI Corp. predicts warmer-than-normal temperatures for most of the Northeast U.S., while much of the rest of the U.S. should face colder-than-normal temperatures.

"Lower gas demand across the warmer northern regions will certainly moderate the demand effects of cooler temperatures in much of the rest of the country," said Paul Flemming, director of power and gas for Energy Security Analysis Inc., which issued a joint energy-weather outlook with WSI Monday evening.

On the supply side, U.S. gas storage levels have hit record levels this year amid a boom in unconventional production and a slump in industrial sector demand driven by the recession. Total gas in U.S. storage as of Dec. 11 was 3.566 trillion cubic feet, 14% above the five-year average and 12% above last year's level.