The Energy Report Monday, July 26, 2010

With Bonnie behind us and more economic ahead of us the oil market currently is in a state of flux. The market continues to be supported by economic earnings related optimism but at the same time it has to worry about current state of oversupply.

Oil and the products remain range bound and will continue to see swings perhaps on both sides of unchanged throughout the day. When the big news of the day is whether or not Tony Heyward will step down or be pushed out of BP has to wonder whether or not the markets are focused on what it should be focused on. 

The Financial Times reports on another way that Shale Gas production is impacting the world. The FT says that  “International energy groups are set to miss out on billions of dollars of future sales during the next decade as China, their most voracious customer, aggressively develops its own large gas reserves and drastically cuts its imported gas requirements, a new study shows.  As a result they have a limited window to export their growing new volumes of gas to China. 

Industry consultant Wood Mackenzie says China will need only half as much more liquefied natural gas from 2020 onwards than it will require in the next decade and it will need no additional gas transported by pipeline after 2020. "Beyond 2020 we expect to see significant volumes of indigenous unconventional gas entering the market and meeting much of China’s incremental demand," the report states. 

Chinese coal gasification, coal bed methane and particularly shale gas are expected to supply more than 12bn cu ft per day by 2030, cutting the country’s need for new tanker-delivered LNG to 8m tonnes a year from 2020, against 16m annually during the next decade. 

For international oil and gas companies looking to grow their LNG business, the emergence of Chinese shale gas will be particularly difficult. China also has large conventional gas resources. Since 2005 the country has become gas companies' most important market as the US has closed its doors to imports because of its own giant shale reserves, and Europe's gas use has begun to stagnate." A must read in the FT.

China is unhappy with the green back again. Market Watch Reports that a top Chinese central bank official suggested switching away from the U.S. dollar as a benchmark for the yuan's foreign-exchange rate, switching instead to a basket of currencies, according to remarks published Thursday Market Watch reports that in comments posted to the People's Bank of China Web site, the central bank's Deputy Gov. Hu Xiaolian said using a basket of currencies from the nation's top trading partners would allow the Chinese yuan to better reflect trading fundamentals. "Compared with pegging to a single currency, the exchange-rate regime with reference to a basket of currencies will help adjust exports and imports, current account, and balance of payment in a more effective manner," she said. 

China's central bank currently sets a "central parity rate" against the U.S. dollar each day, with that day's trading range confined to 0.5% above or below that level. But Hu said focusing on the dollar-yuan rate ignored China's bigger trade picture. "A floating exchange rate has impact on total imports and exports of an economy," she said. "Therefore, the floating cannot be aimed to adjust [only the] bilateral trade balance, and it is not advisable to just look at the [dollar-yuan] exchange rate”. Make sure you are getting all the latest trade updates by calling for my daily trade signals and at the same time make sure you are on the daily energy blast. Also check me out on the Fox Business Network.

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