THE BULLISH CASE 
FOR NATURAL GAS
Dueling Weather
by Joe Duarte, MD
Joe-Duarte.com & IntelligentForecasts.com
September 14, 2007

Hurricane activity has picked up in the Atlantic Ocean, but winter has arrived in parts of Minnesota, making for an interesting weather picture for the energy markets.

Let's assume for a moment that a big hurricane cripples the Gulf of Mexico's oil and gas production, as well as crippling the port system in Houston, South Texas, and Louisiana.

Let's consider that a big chunk of the refinery capacity in the U.S. also gets hit by such a storm, creating a situation similar to that caused by Katrina and Rita a couple of years ago.

Now, just for argument's sake, let's add the possibility that winter arrives, full force, one or two weeks after this storm hits, while none of the infrastructure has been meaningfully restored.

And just to make things interesting, let's just say that even before the hurricane hit, and winter arrived, U.S. refineries were having problems keeping up with demand because of maintenance issues, and other normal operating situations such as the annual changeover from producing gasoline to producing heating oil.

In fact, looking at current data, and probabilities, such a scenario is not that farfetched. Hurricane Humberto shut down the port of Houston just a few days ago, with Tropical storm Ingrid brewing in the Atlantic, although it is much too early to know what Ingrid will or won't do.

But, there are some signs of an early winter coming, and refinery activity dropped this past week, just as crude oil, gasoline, and heating oil supplies fell.

In other words, the scenario we have just described, is not just plausible, but possible, even as we speak. The only thing left to do is to see whether it will develop or not.

The next few days will indeed be interesting.

Mexico’s Vulnerable Energy Infrastructure

Originally published on September 11, 2007 at www.joe-duarte.com 

Monday's attack on six natural gas pipelines in Mexico rallied the dormant commodity's price as it brought yet another variable into an already unpredictable market.

Reports were sketchy as to who was responsible for the attack, as one source reportedly told the media that a militant group from Southern Mexico, the People's Revolutionary Army (EPR) had left a note at one of the bomb sites, but the report was not confirmed by the Mexican government who simply described the explosions as an act of "sabotage."

Yet, the level of sophistication and timing of the blasts suggests that whoever was responsible was a well run organization.

According to multiple reports, the blasts occurred over a period of two hours, from 2:15 a.m. to approximately 4:00 a.m. and came just two months after a similar set of attacks in which EPR demanded the release of two of its jailed members.

According to the Houston Chronicle "the bombs Monday appeared to display a level of logistical sophistication. Targeting valves, above-ground sections and transfer terminals in 30- to 48-inch pipelines, the explosions went off nearly simultaneously in various locations, some of them hundreds of miles apart."

The explosions targeted pipelines that link refineries to the public, and although 12,000 people were evacuated, there were no reports of casualties.

Stratfor.com notes that EPR's membership is traditionally made up of "peasants," but that this most recent set of attacks suggests that the group, or at least one or more cells have achieved a new level of operational and logistic sophistication.

According to the intelligence service "It appears likely, then, that these attacks are being led by a fairly experienced bombmaker, perhaps an educated Marxist who has associated himself with the group. One indication of this is the lack of reports that unexploded IEDs have been found on the pipelines. Moreover, the attackers have avoided detection and have left authorities no clues. These latest bombings strongly suggest that the EPR -- or at least one of its cells -- has evolved, is expanding its target set and is increasing its operational tempo. This bombmaker likely has the ability to construct IEDs that are more powerful than the devices commonly used by the group." t

Conclusion

Several things stand out from these attacks.

So far, casualties if any, have been few, but that may change in the future.

The targets have been well chosen, and the execution of the acts has been flawless.

The timing is also interesting, as this latest set of attacks came one day after the most recent bin Laden tape, and follows a tape by bin Laden's second Al-Zawahiri, released some weeks ago, where he exhorted Al-Qaeda's followers to attack oil installations.

So far, there is no connection between EPR and Al-Qaeda. Yet, the potential for such a connection is clearly there.

Given Al-Qaeda's patience and cunning, it would make sense that attacks on Mexico's infrastructure, aside from serving their own internal purpose, might be viewed as a potential prelude to similar attacks elsewhere, such as the United States.

This is something that is clearly worth keeping an eye on.

© 2007 Joe Duarte, M.D.
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