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Comment by crmd | Hacker News Reader

Can someone explain why the rumor of cracked pipes and delayed restart of a terminal would cause the futures price to go down?

I would think that news of a supply constraint would cause the price to go up.

TIA

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The terminal is for exports from the US (particularly to Europe), and the futures contracts are on US gas prices.

Europe desperately needs gas this winter. Markets are pricing in the assumption that the US producers will get great prices from European consumers this winter.

If US gas can't get to Europe then the US can't sell that gas at high prices in Europe. Also, additionally, the domestic market will be flooded in supply.

Isn't it true that the price for gas in Europe is very inelastic at the moment (meaning they will pay pretty much any price to get it) and so any shortage of it will cause dramatic price increase? Also, Europe can't easily switch to another source of gas because they have maxed out everything they could.

This is basically the reason why OPEC restricts oil production, it is just here the same is happening unintentionally by LNG terminal malfunction.

Besides, looking at that graph it looks that the "plunge" is on the order of normal price change noise. Just look at the history from before the "plunge". Clickbait.

Not sure if your post is trying to contradict the post you are replying to, which made the very good point that what plunged are US gas futures. I assume that yes, this would be very bad news for European gas consumers.

And electricity consumers, since prices usually trend gas prices.

And anyone buys exports manufactured in Europe...

Besides, looking at that graph it looks that the "plunge" is on the order of normal price change noise. Just look at the history from before the "plunge". Clickbait.

Clickbait is literally the business model at Bloomberg: https://www.businessinsider.com/bloomberg-reporters-compensa...

> meaning they will pay pretty much any price to get it

They would buy it at current market rate, which is dropping atm. That's why LNG tankers wait at the coast for a hopefully future higher price.

Is this not diminished by the buyers hedging?

you still need counterparties

Aren't they camped out because Europe's storage is maxed out and the winter so far is mild so it isn't using as much gas?

Yes the heating period ist just now starting as it gets colder.

That's crazy late.

In addition Germany for example sees a huge reduction of consumer usage even after accounting for outside temperature.

People are changing their habits in anticipation of increased gas bills (and also nobody likes being blackmailed by Russia).

In April May it will become clear how much was used and what it did cost extra (since most renters get their yearly balance around that time)

>Yes the heating period ist just now starting as it gets colder

We broke records around the UK yesterday for the warmest November day so still not really starting here.

Were also breaking records for wind generation.

>it is just here the same is happening unintentionally by LNG terminal malfunction.

with all that is going on in the world, it would be really easy to give into the conspiracy aspect and say intentional malfunction. we've already seen what has been agreed upon as sabotage to underwater pipelines. why not a terminal like this as well?

Edit: I'm in no way pushing this as a thing. Just speculating from past experience in the inner sanctum of groups that would absolutely push an idea like this. Just because we as a forum might not think anything like this would be possible, you absolutely know there are those that will

You've had past experience involving large conspiracies?

oh boy, where to begin? very long story short, yes. yes I have.

I think US needs its partners more than ever and doing things like this on purpose is bound at some point to backfire on them spectacularly. I think rational US government would not do something like this on purpose because there just isn't a whole lot to gain but boy, there is a lot to loose.

ahh, you seem to think that a gov't is the only thing that could do something like this. what if the gas company itself did this? a true conspiracy aficionado would follow the money and ask who benefits the most. hell, a good conspiracy would suggest all of LNG producers got together and chose the specific plant to sabotage so they all benefit.

conspiracies are just so much fun! /s

whats interesting to consider is that while russia had no interest in sabotaging their nordstream pipelines, the US absolutely did. conversely russia has great interest in fouling up the gas markets the US relies upon to profit from russias curious energy export misfortunes.

Putin has plenty of interest in sabotaging the pipelines. If the pipelines are destroyed, one cannot kill Putin, take over, and sell gas to europe again to be rich.

The US would suffer an incredible risk if it ever came out that they intentionally sabotaged European energy supplies to such a scale.

What risk? The US says jump and European politicians ask how high...

Wasn't Germany building Nordstream 2 against US advice? It doesn't seem like European politicians always do what the US government wants.

Does that suggest your model might be wrong or over-simplified?

>The US says jump and European politicians ask how high...

I mean, if that were true Julian Assange would be in a bodybag right now, wouldn't he?

Good point! Where is he these days and how is his life going?

Better than it would be if the US had its way.

The UK refused to allow Assange to be extradited to the US because the US still practices the death penalty. That's one of the few areas that the UK and the US disagree publicly on.

Instead he was merely kept isolated in a single building while his accusers simply refused to investigate the allegations they invented unless he turned himself over to them to be extradited to the USA.

So yeah, maybe they aks how high, but sometimes don't jump all the way, just most of it.

There was zero blowback last time the US blew up Russian pipelines. It was the largest non-nuclear, man-made explosion / fire to date though -- all achieved in 1982 via a software supply chain attack:

https://www.algora.com/Algora_blog/2022/09/29/reagan-approve...

Interestingly, the three simultaneous ruptures of two pipelines look a lot like what happened 40 years ago.

It wouldn't surprise me if a shoden-wielding script kiddie was to blame this time, but I have no idea. I'm not trying to imply anyone was/wasn't involved.

Also no blowback when the US blew up refineries and oil pipelines in Nicaragua in Puerto Sandino, in 1983[1] - as well as mined the ports of Nicaragua[2]. There is in general a 30 year statuary timeline for declassifying these types of ops, although the US is usually late[3], so we may have confirmation in 2060 or so.

[1] https://repository.law.miami.edu/cgi/viewcontent.cgi?article...

[2] https://www.washingtonpost.com/archive/politics/1984/04/07/c...

[3] https://fas.org/blogs/secrecy/2011/10/frus_leads_lags/

That's questionable. From wiki [0]:

"A report in the Moscow Times quoted KGB veteran Vasily Pchelintsev as saying that there was a natural gas pipeline explosion in 1982, but it was near Tobolsk on a pipeline connecting the Urengoy gas field to the city of Chelyabinsk, and it was caused by poor construction rather than sabotage; according to Pchelintsev's account, no one was killed in the explosion and the damage was repaired within one day. Reed's account has also not been corroborated by intelligence agencies in the United States.

Another point of criticism of the sabotage allegations is that, according to Prof. V. D. Zakhmatov, an explosion safety expert who has overseen the safety measures on many of the Soviet oil and gas pipelines built in the 1980s, at the described timeframe Soviet Union simply didn't practice digital control of its pipeline system. Most of the control was manual, and whatever automation was used utilized the analog control systems, most of which worked through pneumatics."

[0]: https://en.wikipedia.org/wiki/At_the_Abyss

It's an analytical mistake to think in terms of Russia's interests. The correct perspective is what might be in Vladimir Putin's interests. He's stuck in a quagmire and trying not to be deposed.

Whoever sabotaged nordstream handily left one pipeline undamaged which can be used to send massive amounts of natural gas to Europe.

> Europe desperately needs gas this winter

Yes, but consider this: There's ca. $2bn of LNG waiting on LNG tankers around Europe, with many more ships to come.

https://www.aljazeera.com/news/2022/11/6/dozens-of-ships-car...

Does not look all that desperate to me any more by this point. The price is higher than before of course, but that is much less of a problem than not having the gas. Besides, isn't that higher price exactly what is needed anyway with climate change looming? About twenty-five years ago the Greens in Germany wanted 5 DM (it was ca. 1.50 DM at the time) for a liter of gas for that reason.

Yes, supply is meeting demand. That's roughly consistent with the (all in all relatively modest) 7.4% price move in us futures, some of which was retraced. If this had happened with less reserve in the system, that price move would've been much higher (and from a much higher base).

Note the article's wording: "US natural gas futures plunged..." If the US can't export, there is increased domestic supply, causing the futures price to fall. If exports through the terminal resumed, US prices would rise since now global buyers are competing with domestic buyers, and prices between linked markets (e.g. US & EU) would equilibrate slightly. Also important to recognize that EU gas prices are much higher than US prices, so there is large demand for US->EU LNG shipments.

US has a large supply of natural gas and domestic prices are cheap. LNG prices are very high globally. The price discrepancy exists because there is not enough LNG export capacity. This is a very large LNG export facility. When it gets back on global LNG supply should increase and prices should fall. Domestic supply should decrease and prices should increase.

When operational, this facility consumes billions of cubic feet of natural gas [1]. They take gas make it liquid, put it on a boat, ship it.

If they have cracked pipes, they are less likely to reopen.

Not reopening, not going to consume the gas.

Less demand for gas.

Price drops.

[1] https://www.eia.gov/todayinenergy/detail.php?id=52859

The fact that one is unable to buy gas does not mean demand for gas has fallen.

The fact that the plant will be unable to buy gas for longer than anticipated should reduce the expected demand for gas. Less demand for gas, lower price for gas.

People were pricing gas on some expectation of this plant opening and consuming at some point in the future. If that's pushed back, the price should drop.

That is not how that works. That would reduce the quantity demanded, not the demand. You're describing a supply decrease, which will raise the price.

The mechanic here is the decline of exports to europe making the supply of gas available to us go up, meaning the price for gas in the US will go down.

Reducing the quantity demanded is reducing the demand.

I don't understand how you reduce "quantity demanded" but not "demand." MAybe you can clarify.

I am describing a demand decrease.

When operational, this plant consumes US gas. It is a demander of gas. If it's staying closed, less demand for US gas.

> The mechanic here is the decline of exports to europe making the supply of gas available to us go up, meaning the price for gas in the US will go down.

This is correct and equivalent to what I'm saying.

Your notion: "If this place doesn't open, less gas is exported to europe, leaving more supply in the US"

My notion: "If this place doesn't open, less gas is bought in the US for export to europe, leaving more supply in the US"

We're on the same page.

> Reducing the quantity demanded is reducing the demand.

> I don't understand how you reduce "quantity demanded" but not "demand." MAybe you can clarify.

As much as I dislike appeals to econ 101, this is a basic concept of econ 101.

Demand is the general willingness of people to buy something. If the price goes up they will be less. If the price goes down they will by more. Demand is how much they want to by as a function of the price.

Quantity demanded is how much they're going to purchase given a specific price.

A change in demand implies people are no longer going to buy the same amount for the same distribution of prices. e.g. perhaps a new iphone comes out and people aren't willing to buy the older version for the original price.

If the price goes up due to supply shortages or down because of supply increases, the quantity demanded will change but demand will not. The price will also change.

https://keydifferences.com/difference-between-demand-and-qua...

You are describing supply side effects. We're arriving at the same place, but your explanation of the economic story is not correct.

This is very clear and helpful. Thank you.

Gas storage is fairly limited and near capacity. Production of Gas is incidental to oil drilling, so "keeping it in the ground" would require keeping the more valuable oil in the ground and is unlikely to happen. One sink for it (this terminal) is reduced. Since there is now less demand but a constant supply, prices should go down.

> Production of Gas is incidental to oil drilling

For some wells, yes. For others, no.

The futures price is for US. The terminal is for export. So terminal failure pushes more supply into US market.

Freeport buys US natural gas and turns that into LNG for export to Europe. With a plant shutdown, it’s not buying as much natural gas domestically. Hence price in US goes down. Despite still high globally.

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