Monday, January 23

Today was a generally bearish market day. President Trump’s executive order to begin dismantling the TPP will (if it is successfully carried out) have far reaching consequences for the global economy. We managed to maintain growth due to a 10% gain by our holdings of defense contractor Tel-Instrument Electronics (TIK), though our holdings in S&P index trackers market-performed (down 0.27% today).

This new emphasis on this “America First” type of protectionism hit our holdings in Coty Inc. (COTY) harder than the general market due to the simple fact that this is an international company and any trade regulation is bound to be especially bad for them. Coty remains a profitable company, and it is still unclear if a complete dismantling of the TPP will have any real effect on this French company who’s imports were never regulated under the Trans-Pacific Partnership in the first place.

The energy sector fell today on a combination of general market weakness and a rig count increase of 35, a gain that hasn’t been seen in five years. Oil prices ended the day down 0.7 points, but rallied in the afternoon on renewed chatter around the possibility of another “polar vortex” in late February. Natural Gas prices grew dramatically today almost entirely on this weather news, but it remains likely that prices are going to fall by the end of the week.

We also took today to examine the longer term prospects for Natural Gas after a new EIA Short Term Energy Outlook (STEO) report. This new report contained one graphic that we found particularly compelling as it’s a topic we’ve explored in the past. Near the end of the report here (link) you will find this chart detailing the previous two years of import/export activity along with forecasts for the next two years:


According to these forecasts Natural Gas exports may exceed imports for the first time almost entirely due to LNG exports. Currently we do not have the capacity to export LNG at those levels (currently we only have three, though three more are under construction). Currently these are all centered around the Gulf area and intended to serve the European market where Natural Gas prices are above $5.00 and rising (up 12.07% this month). The trouble here is that Russian State Natural Gas producer Gazprom can supply Natural Gas to Europe at a cost of $3.50 (currently they sell around $5.80). Attempting to ship more expensive LNG can be profitable to an extent, but inevitably Russia will be able to undercut these prices.


You can see on the map above that the vast majority of facilities and proposed facilities center around the Gulf Coast. This cuts down on the distance the gas must be piped before it is liquified but ignores a potentially profitable market in Asia where LNG demand is established and stable. While the existing terminals could technically serve Asia as well, ships transporting LNG out of these ports would be limited to Neopanamax regulations as they would have to be small enough to make it through the Panama Canal. The two proposed terminals in Oregon and Washington are already the site of deepwater shipping ports – and the size of these ports would allow the docking of the massive Q-Max hull specifications (the largest LNG carriers in the world). As this develops there will be many, many companies that stand to benefit – from the obvious natural gas suppliers, to the ports, to ship manufacturers like Samsung and Hyundai, to pipeline companies and equipment manufacturers.

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