Natural Gas with special guest Stephen Schork – Commodity Research Group

Yes, I was. W what years

Were you on the floor about?

Uh, I was there from the late nineties to the early two thousands. Uh, fortunately I had just left the, uh, floor a couple of months before nine 11, so their, for their buck for the grace of God. And then when we launched our daily research project, uh, shortly thereafter. So we’ve been in business now in these particular markets, uh, for the past 16 years, uh, Jim, as you and Andy, as you recall, I, uh, began, I cut my teeth, uh, with Glencore in the early 1990s as an analyst, uh, for seven, eight years with them. So it’s been quite a ride,

Right. And, and lots of experience. And you’re also a star of stage and screen. You’ve been on all the important TV shows you quoted in business journals and everything. And, and so, uh, welcome Stephen and hello, Andy. Great, great to be here. So our first let’s let’s get right to it. Oh, first of all, um, before we begin, why don’t you tell people how they can get in touch with you, um, outside of this podcast?

Yeah, absolutely. Our core report is the daily short report. That’s S C H O R K a, which highlights key metrics of import for the energies traded on NYMEX and the ice. Uh, we also have a weekly power net gas report, which provides price range forecasting for regional pricing points. And we pride advisory services for hedging programs specific to the industry’s needs to a complimentary trial. You can email us at contact at Shork report again, that is S C H O R K a. It’s actually contact a chore group.com or you can call us at (610) 225-0171. Yeah.

Well, thank you for that. And let’s get right into this week. We, uh, are delighted because Andy and I don’t spend a lot of time on natural gas and that’s what we’re dedicating today’s podcast to. So my first question for you is what in the heck’s going on in natural gas?

Uh, absolutely. Uh, natural gas is in the midst of a, just a perennial bear market. It is a situation where we quite frankly, just have too much supply, not enough demand. We have to keep in mind that natural gas is a very seasonal market, uh, attracts a lot of speculation in this market. So we tend to get, uh, very outsized swings in volatility. So we had a very bearish summer. I mean, I don’t think we have to really go into that with regard to the demand destruction from all the, uh, COVID 19 mitigation, uh, protocols. Uh, we did start to see a rebound in demand and we did have a nice little rally at the end of the summer early fall. Uh, this is a false rally, uh, natural gas in my 30 years of trading. It is a very peculiar market. That is to say that it has a tendency to rally when we’re in the shoulder months.

So when a weather driven demand is at its most neutral, uh, then when we get into the winter, uh, we tend to see prices fall off and we tend to see a bear market through the winter all the way through the end of the winter. And oddly enough, when we get into late March, early April, I E the, uh, the end of, uh, winter into the spring, that’s when we rally again. And we typically rally right until we get to the dog days of summer, everyone’s flipping on their ACS, we’re burning lots of natural gas to keep those ACS going and then markets tank. So it’s a market that zigs when everyone expects it to zag. And, uh, we zigged a few weeks ago, but we’re in the midst now we’ve had our pre winter rally and fundamentals are taking over, is taking over. And quite frankly, guys, we just don’t have a enough demand relative to supply. And that is quickly being repriced into the markets.

So, um, the price has gone from around three 40, late October to what, around two 40. Now that’s a, that’s a heck, that’s a heck of a Zack.

Yeah, absolutely. And, uh, and as we know, uh, anyone who’s been out around these markets that is very typical of natural gas, uh, going back to, uh, the good old days when Enron was hijacking the California market in the early two thousands, uh, the destruction we saw during 2005 without Atlantic base in hurricane season, uh, with a couple of notable hedge fund implosions here and there, this is a market that is extremely scary market. Uh, now I don’t like to make this, uh, comparison why I make this comparison lightly because I do have a child in the military, but trading natural gas is almost a kin to combat. And that is this. Now I’ve never been in combat, but all the movies I’ve ever watched, it’s you kinda sitting around in your Fox hall, uh, nothing’s going on, you playing cards, things are kind of boring.

You get complacent and then boom, that mortar hits and then all heck breaks loose. And that is natural gas. It’s a market that Lowes you into this false sense of security. Uh, people we’re all humans. We like to trade, keep it very simple. We like to trading ranges, buy $3 gas, sell $3 50 cent gas, rinse and repeat. And we continue to do in trade in fade those ranges until you do it until it stops working. And when it stops working, that’s when the dam burst. And quite frankly, that’s where we are now that we were trading in that high $2 low $3 range, buy, sell, buy, sell, and then fundamentals are now taking over. And we’ve made that next tranche lower. As you said, from a three 20 range down to a sub $2 and 50 cent range,

Steven talking, let’s get into the fundamentals a little bit. First, the, on the production side, it seems that, uh, production, some of these production numbers are coming in, uh, somewhat higher than, than forecast. Is, is there a reason for that? I mean, is it, was it a price response or, um, you know, is it a response to what’s going on in, in, on the crude market?

Uh, yeah, I, I think to, to that latter point, uh, certainly when it comes to associated production and that has been the bane of the existence of natural gas bowls, uh, and that is the ancillary gas that comes up with all that crude production. Uh, we see down in the Permian. And in fact, when we look at, if we look at the last drilling productivity reports, uh, in the forecast going through into the end of this year, when we look at, uh, production, certainly production crude oil production in the Permian is falling over the last 12 months. It’s been falling at about, uh, 74 hundreds of a percent per month, but oddly enough, natural gas production in the Permian has been growing by 15 hundreds of a percent each month. And in fact, when we look at the, uh, seven major shell, uh, plays Anadarko, Appalachia, Bach, and Eagle Ford Haynes for [inaudible] and Permian Permian over the last 12 months is the only shell play with natural gas where it’s been increasing over the past 12 months. So, so clearly we, we, we’re still getting that, uh, production, uh, where we don’t want it because to add insult to injury, we’re producing all this gas in the Permian. We don’t even have a natural gas rig employed in the Permian. So this is all that extra gas that’s coming up with that crude oil production. And so regardless of the yeoman’s effort that’s been made by the industry here in my home state of Pennsylvania to pull back production, uh, it’s still remaining much too high for the current demand fundamentals.

Is that due to better, uh, collection, I mean less, maybe less flaring or a better takeaway capacity. What’s why, why is that increasing?

It is increasing w w with, to your point now, we, we just came out, uh, 2019. What was, uh, we flared more gas, uh, in that area than ever before, not surprisingly giving how strong that production is, but we’re seeing, uh, increased to your point a greater capacity. There’s a significant amount of gas pipeline gas now flowing into Mexico. Uh, we’ve seen a large build-out in takeaway capacity, uh, in pipes going down to the utilities in what is that that’s Northeast Mexico. Uh, so we’ve, we’ve had a nice rebound in or increase in demand there. And then of course the big story is LNG. And certainly we, we took our lumps, uh, back in the late spring, again, related to COVID, but LNG, uh, demand has come surgeon back. And really that is what the natural gas bulls are really pinning their hopes on because we’re really looking at a market here in North America that that does remain uh glutted but there are indications that we do have strong demand in Asia and in, uh, and Europe that will help deed go up the market. Uh, by the time we get through the end of this winter,

How, how much ex how much extra export capacity can we get?

Yeah, right now, if we look, uh, through, uh, through the end of this summer, uh, with, uh, with import, excuse me, with, uh, LNG exports, uh, we’re expecting a right here. And that is when I say we were talking about, uh, the EIA, uh, we’re looking at net, uh, exports to grow, uh, on average 13%, uh, per month between August of this year and March of next year. So effectively, what that means is we’re, we’re going to be growing, uh, in August from about 3.6 BCF a day, uh, upwards of, uh, 8.6 BCF a day. And when we look to the end of next year, uh, we’re looking at a significant growth all in all of 6.7% per month. So by December of 21, uh, we’re looking at capacity at over 10 BCF a day. Now, when you add that to, uh, you net that out against LNG imports, and then you take the net of imports with pipeline, we’re looking at a significant growth in overall export capacity.

So, uh, we’re, we’re, we’re, we’re only, currently, we’re only about a third of the way there. So we have a significant amount of growth in demand. Uh, and this is really what the market or w when you talk to the bulls miss market, this is really kind of the story they’re telling you. That is the, say the rebound in demand, uh, mainly driven by LNG. Eventually we get a rebound in demand here in the U S uh, both commercial and industrial demand. And I am really skeptical of that, but don’t tell the bowls that, uh, and that’s the story they’re painting that, you know, the, the kind of the diminimous pull back in production we’ve seen is not going to be able to keep pace with all this expected demand.

Can you, can you talk to us about the international, uh, is, is, is there a traded international price for natural gas? And what does that, what does that,

Yeah, yes, absolutely. Uh, we have a liquid flowed market on the Japan Korea marker, which is traded on the NYMEX, uh, and that, uh, you can, uh, get reliable quotes, uh, for three months out. So we’ve seen in that marker, and we’ll just, that’s the JKM marker. And we’ve had significant growth, a very nice rally in that market. Uh, we also have a very liquid market in the Dutch title transfer market, that facility that’s the TTF market, and that’s a good benchmark for pricing going into Europe. So when we look at, uh, but both of those markets on, through the end of this winter, uh, certainly, and this is the indication going into the winter, and now we’re looking at the spreads relative to the end of the winter. When we look at the basis, that is the, say the TTF or the European marker it’s premium to Henry hub, and also the JKM the Asian premium to, uh, the Henry hub.

Uh, those, those values, uh, those premiums to the hub have doubled since the start of the winter. And this is where, where the bowls are really leaning on saying, yes, the, the, the net backs are there. That is the, say the economics to move gas out of the golf coast are there to get it through the Panama canal, get it over to Asia, uh, get it around, uh, the panhandle of the tip of Florida and get it into the North of Europe. So the economics are there indicating very strong demand, and we have keep in mind, spreads always lead the way. So when we look at the international spreads relative to Henry hub contract, very bullish, conversely, when we look at this spreads on the Henry hub, it’s self, they tell a much different story, and that is an extremely bearish story.

Well, certainly we’ve seen the contango in, uh, in Jan FEV, natural widen and, and, uh, the, the March, April has a, it looks like it’s moving to flat. Maybe, maybe, you know, that might move into contango.

Yes, yes. Uh, and, and, you know, yeah. So I’m sorry.

Oh, Steven. I was just going to say an Andy’s idea of a Widowmaker trade is, has always been the heat to gas heating oil to gasoline. My, my mine is the, uh, option players that sell options month in, month out, sell strangles. And then all of a sudden, you know, it’s doom to blow up. And, um, I guess w w he just mentioned the, uh, March, April Widowmaker for natural gas traders.

Yeah. So that, that is if you’re trading, when you start trading the, the March, April, uh, Nat gas, uh, uh, spread, uh, you know, you now playing the varsity, uh, on that level,

I actually met a woman that lost a lot of money on March, April, so we can update it to be the widower maker as well.

Yes, absolutely. This is, uh, this is the infamous spread that, uh, turned a $9 billion Nat gas hedge fund in Greenwich, Connecticut into a $3 billion hedge fund, uh, in about two and a half weeks time. Uh, it’s also a spread that turned that $150 million spread, uh, fund a couple of couple of years ago into a, a zero, uh, gas fund. So, uh, so quite Frank, yeah, th this, this is a spread, uh, that, uh, can make your head spin. And right now with what we’re seeing it, it’s telling us a very bearish story.

And it does it does it on both sides. Right. Um, in, in recently, right now, it’s, it’s gone sharply lower.

Yeah. I, I actually, I did the double double, uh, 10 years ago with this spread. I lost on the spread on both sides of this spread. So that takes palette.

I’m sure you’re not alone in doing that, Steven.

No, absolutely. I’m in good company. Yes.

So I want to ask you, um, just shifting gears a little bit, um, and talk somewhat some, what about, uh, the new administration coming in and, um, how you see, uh, the bind administration’s view towards, uh, natural gas, you know, relative to the current administration or relative to the Obama administration or, or, you know, what, what your feelers are on, on that, on, um, you know, on that, on those issues. Yeah. Yeah. I, I absolutely have

My I’m, I’m holding my breath, uh, right now. Uh, and quite frankly, uh, I, I am concerned. It’s a very confused message that, uh, that we’ve received over the past year from, uh, from the, from the biding camp, when we go back and look at the DNC platform, uh, in 2012. So for a bomb was second term Obama that administration, that platform, uh, was all in, on natural gas. I invite anyone, you know, everyone to go to the DNC website, uh, into the archives and read, uh, their energy policy, but it was all about promoting natural gas, natural gas. It was seen correctly, so that, uh, given that us industry has the cheapest source of energy anywhere around the world, uh, we have unparalleled our, our companies have unparalleled comparative advantage, uh, something that China greatly NDS and the Obama administration, uh, recognize this and really wanting to, uh, exploit this.

It goes without saying that the Trump administration of course, was all in, uh, on hydrocarbons. Uh, but now, uh, we go and we read the 20, 20 democratic IDMC official platform. And oddly enough, and I do think this is a little kind of, you know, playing around with the words, uh, cause anyone outside of the industry probably doesn’t equate natural gas is rarely the other name for natural gas is what messaging. So the platform is all about containment and how we’re going to control all this. And, and when we look at, uh, the rhetoric and, and look, I have a daughter that lives, uh, that, that used to live in Brookline, Massachusetts, uh, they passed the ordinance. New construction can not have natural gas hookups. You have the same situation in Berkeley, California. So, uh, it really is a we’re really playing, playing with fire here at this point.

So it’s hard for me to imagine, uh, w we take such a negative turn giving how important natural gas is. Uh, but the biggest concern is not, Oh my goodness, Joe, Biden’s in office, he’s going to outlaw the use of natural gas. Well, that can happen. I mean, he is going to ban drilling on federal lands. That’s in the DNC platform, right? The bulk of it is in private, uh, land, uh, PR PR in private hands. So really that’s a constitutional issue. You’re not going to be able to ban that gas, but what you are going to do is you are going to violate the bedrock of capitalism, and that is capital flows to where it is welcomed and stays where it is most, uh, where it’s treated well in the signals, regardless of what side of the political aisle you sit on. The are clearly that investment in the hydrocarbon is not welcomed and will not be well-treated. So looking ahead for the next four years, we’re looking at, I believe as this, as this money spigot into the industry is turned off, I would expect to see a tremendous amount of volatility in the years ahead.

Interesting. I, I think, um, was it Warren Buffett just bought up midstream company and maybe, I mean, you think their analysis was that, uh, we’re just not going to get pipelines built going forward. And, um, therefore pipelines existing pipelines will increase in value.

Yes, absolutely. When we, when we look at, and kind of the transition we’ve been over the past 20 years, of course, when I was a buck for instance, 20 years ago, when I was a buyer for a utility in the mid Atlantic, we ran peaking generation units, and we had an inventory of coal, of, of, to oil, uh, of, uh, natural gas, of course. And, uh, we would run our units based on whatever our cheapest BTU is. And we bid our power into the PJM. So what I’m getting at is we had diversity. We had BTU diversity, uh, that BTU diversity is no longer there. Uh, you can’t burn coal, or at least in the plants we had can’t burn coal. Of course you’re not burning oil. And so you’re burning only one thing, and that is natural gas. So as we deplete our diversity in this area, as we continue with the rampant pace of the retirements of coal plants, and I imagine that’s going to accelerate over the next couple of years.

And when we look at the number of generation of nuclear generation that we’re taking out of the stack, we really can only replace it with natural gas. Now, guys, don’t tell me that we’ve got renewables because renewables is nothing but another name for natural gas. So renewables, solar wind. It does work in certain market areas, West Texas, Southern California, so forth, but in the greater scheme of things, California is still your largest net importer of electricity. Massachusetts is still a huge importer of electricity, New York state, a huge importer of electricity. What am I getting at the States that are our most up against natural gas are your biggest consumers of out-of-state or international forms of power. So when we begin to kind of play around with that, I, you know, I’m not going to argue against Warren buffet. I’m happy he’s making these investments into the, into the, uh, into this infrastructure, but yes, we’re going to see a number of these pipeline projects that are already, uh, on the, on the board, probably scrapped. And we work, you’re looking at a deficit of capacity to move the gas and, uh, from where it’s being produced to where it’s needed. So clearly I think that goes back and supports my concern about future volatility in this market.

Volatility could be out of control. Oh, abs absolutely.

Uh, w when we were looking at the differentials of, uh, in all the capacity, I mean, we just are in the process of deed gliding, Pennsylvania, but all that did was move all that gas into Ohio. Uh, and that was gas that was supposed to flow up to Canada, but the Canadians took exception with that. So, so, so, uh, because their industry in Alberta, uh, was getting decimated. So we have a lot of trapped gas. Uh, we don’t have the capacity or we have limited capacity. So to your point, Andy, absolutely. Uh, you’re going to see a number of basis blowouts. So if you’re a trader buckle up, because this, this should be a fun couple of years for you

And do options trade on those. Um,

Yeah, well options. I mean, these are more over the counter spreads, you know, I would leave that, uh, I mean, of course we have a robust options market, as we know on the NYMEX and, and certainly, uh, with what we’re seeing, uh, and, and just in the increased evolve, uh, just the past couple of weeks alone, again, as we referenced before with that March, April spreads sinking now into contango and, um, or excuse me, Jan Seb sinking into contango, uh, FEV March inching towards that. And I think, uh, the cross seasonal March, April, uh, finished yesterday, uh, on Tuesday of this week, uh, uh, just the 2 cent backwardation that is going to slip in. So, uh, yeah, I would, uh, there is, I certainly on the makes a robust, uh, options market, and certainly we’ve been seeing an increase in open interest, uh, back and curve because we’re, we’re looking at guys a market now, where do you just the, the spike in volatility we’ve seen in the summer 21 strip against next winter, the 2122 strip, uh, that, uh, that, uh, contango the discount of summer to a winter just in the last two weeks alone has been growing at about a half a percent per session, uh, trading.

Now that is the summer trading at about a 29 cent discount. So clearly we’re seeing a lot of hedging opportunity to a lot of, a lot of speculative speculative trading, um, moving in and taking advantage of these, uh, wide swings.

I was thinking of you, if you had access to, uh, one of those pipelines, that’s like owning an option, you know? Yeah.

Right. Yep. Yeah. It’s embedded. Exactly.

And fortunately at the

Shore group, I have a number of pipeline know because quite frankly, I was a little bit nervous, uh, when we were looking at a negative $20 in negative, uh, crude oil and, and sub $2 gas. But, uh, my, my pipeline co uh, clients have, I’ve been doing quite well. So, uh, I I’m, I’m sleeping better at night, uh, today than I was say, six months ago. Very

Good. Let’s a little bit about the hedging strategies. I know you do a lot with, uh, making head Trek, commendations, and we’re not asking you really for a price forecast, but you know, at the market here at two 40, uh, you know, w what are some of the things that you you’ve been saying to your, uh, to your clients, or what would you recommend the producer do, or what would you recommend a consumer do here at here at these levels?

You really have to Andy be, uh, really, uh, dynamic, uh, picking your spots, uh, in the markets. So, uh, what we do is, uh, here at Shork is we take a probabilistic view, uh, of the market. Uh, we have to keep in mind that, that, that there is a value, there is an economic value that we could assign to any, uh, to any commodity. That is the, say, we know the cost of exploration. We know the cost of production processing so forth, and we take all those costs. We factor in the margin. And, uh, certainly we can, uh, come up with, with the value of any market, but we have to take into mind that, um, you know, taking fundamentals into consideration, uh, we also have to use this quantitative model and, and that this is Monte Carlo or Rema statistical measurements of volatility to come up with a, with a range of prices.

Uh, commodity markets are so highly leveraged involved till, uh, that we have to work off the assumption, uh, that technical analysis, uh, is also used, uh, and, uh, in a wide range, uh, specific to our markets. So, you know, the key takeaway, and I’m a believer in the efficient market theory, but there’s a lag, uh, with information getting to the market. So the key takeaway here is that we believe there’s a gradual flow of information to the market and in return, uh, the pattern of price adjustments involves in this gradual movement, uh, to a new, weekly equilibrium and price as, as the fundamental information is digested in the market. So that’s said during these price adjustment periods, you, you know, where you can really, uh, you know, you know, measure the market, the market is kind of give us an indication of, of where we’re going.

So employing a number of having that fundamental understanding of wheel values, quote, unquote, should be, but should, is the most useless helping verb in the traders lexicon. And so what we do is we, we do, uh, take these measurements and we come up with that range. So Andy too. Yeah, that was a long-winded way of answering your question, but essentially what we’re looking at is, you know, we’re looking at analogs of, of past price performance, and, and there’s two ways you can do this with measuring volatility. You can measure it in the implied volatility. And that of course is nothing but the market’s guess of what future volatility is going to be. And we can extract that implied volatility, uh, from the black Sholes market, reverse a model and reverse engineer it. And we kind of got to get what the model is. Estimating volatility will be.

Uh, I don’t like doing that. I’m a more conservative guy. I prefer to look at statistical volatility or historical volatility. It gives me a much larger breadth of how wide the market could actually go, uh, and for my hedging clients, uh, I think that is, uh, that leads to less whip saws, last nasty surprises. So we do come up with a wide arc of, uh, of, uh, price range forecasts. Again, assuming that there’s a normal distribution in returns. And so effectively what I’m getting at is if, if I’ve got a client a that has that a heavy end user steel mill, aluminum smelter, so forth when we are on the bottom arc, uh, that is the, say 30th, 20th, 10th percentile of my price range, uh, going for given time series that I’m all in for locking in. And conversely for my producer clients, when you get into that, there’s upper core tiles, 75th, 80 90th percentile of the price range for a given time series.

Then I have you locking in. So to your point, Andy, uh, just kind of looking at, uh, w you know, we’re at a $2 and, you know, right around $2 and 40 cents in the spot market, Henry hub on the NYMEX, uh, right now for my monthly outlook, uh, we are my monthly outlook, and that would be, uh, on this particular outlook that I’ve got up that is a two standard deviation arc. So, uh, that comes down to right around $2 and 40 cents, uh, give or take a couple of pennies. So what we’re saying here is what I’m saying here is, uh, uh, uh, uh, second standard deviation 19 out of every 20 months, I expect natural gas is going to hold at, or around $2 and 40 cents when the month ends. And of course, if it’s that one month, uh, out of the 20, where it doesn’t hold, then we look at the arc of our model to the third standard deviation in this case.

And that’s going to get us down to natural gas at around $2 and 20 cents. So that’s saying 370 out of every 371 months, I expect natural gas to hold in that two to 20 range. So if you’re hedging, and maybe this is just an example on the spot market guys, but if you’re hedging and you, and you, you need to own gas, then $2 and 40 cents at the 95th percentile, uh, excuse me, 96, um, uh, 95th, um, a confidence interval of the second standard deviation and two 20, which is the third standard, the standard deviation I liked by, from a hedging standpoint, I liked the locking in gas at the, at these levels guys. Okay.

And then it become, I mean, do you find to Nat by what percent and in, you know, it’s, it’s, it, it w we, we dealt with airlines earlier in the year, and actually I talked to a country, um, that was looking at locking in prices for 20, 21 a week before we went to minus 40. So prices have come down and they were looking at locking in next year. Unfortunately, next year’s prices didn’t come down as much. Do you have that same issue, uh, with, with your hedgers? It’s not just what today’s prices is, what’s going on in the month that they want to edge.

Yeah, well, we’ll just set this aside. I cannot stand the airline industry every, every time I have to fly into my seat and coach and why I can’t stand the guys, because as we know, in 2008, when crude oil prices were upwards of $150, a barrel jet fuel prices were soaring. And then in six months by, you know, that was in June of Oh five. And then when we get, uh, excuse me of Oh eight, and then by the end of Oh eight, uh, crude oil prices are at $30 a barrel. And of course, jet fuel prices are, you know, had cratered. So I do a talk to the airline industry at, at Platts aviation week down in Miami. And I do my presentation, you know, now that we’ve had this crash and I want the airlines to buy as much jet fuel as possible.

First answer I get, I won’t name the airline, but, uh, with, and this is when oil was at $30 a barrel and said, short, why do I need to hedge oil prices are back to where they belong. And I want to strangle the guy because no one was hedging. And now I’m sitting and I’ve got, you know, three inches between my nose and the seat in front of me and coach. So, uh, yeah, that’s, that’s a sore topic for me, but to answer your question with regard to the back end of the curve, uh, hedgers are very, and this is for you traders out there. Uh, this is a bit of an information cause they had jurors are, are reticent to lock in longer term out because they’re looking at what’s happening, uh, in the forward curve that they’re, they’re looking at a winter 21 gas, uh, that was trading at a 52 week high.

Uh, just a couple of weeks ago has cratered by 50 sets of deck of CIRM, same for a winter 21, 22. So a lot of, uh, hedgers are just going, uh, just going to index and not locking in on the assumption that cheap natural gas prices are here to stay. And look, it’s hard for me to argue against, against them because I, I’m not buying into this bullish thesis for 21, a gas. So I, so I really cannot say, look, guys, you really, I mean, I’m saying it from a mathematical standpoint, from a statistics standpoint, then when we look at volatility where we’re really kind of like, you know, I always use the analogy of a rubber band. You know, you put a rubber band in between your hands, palms facing one another. And as you move your palms away from one another, that that rubber band begins to stretch.

And, and at that point, it gets to an inflection point, either that rubber band is going to snap or Mo most of the time that rubber band is going to regress and pull your palms back together, roll our hands right now. And natural gas out on the curve are pretty far apart. So I’m betting on that. We are going to get a regression. So I’m trying to get my hedgers to, uh, to lock in as that rubber band is stretched, uh, because they really are. They’re taking the gamble. You know, what’s the gamble they give their gamble is at $2 and 40 cent gas that they could be buying $2 and 20 cents gas, or even let’s say even $2 gas. So that’s a 40 cent implied P and L right there, but on the opposite. And we know we can go to $3, $3 and 50 cents, $4 just this easily. So you’re taking a, you’re taking a 60, $81 risk to potentially gain 20, 40 cents. That’s not good poker. So, uh, but you know, we, we are humans. We, we tend to live in the moment and at the moment it’s a barest scenario. So hedgers are reluctant to hedge. And, you know, again, if you’re a trader, that’s probably, uh, music to your ears.

Yeah. I mean, the other piece of that is a lot of these end users don’t know what the demand for their products going to be out one month, let alone six months. So, you know, you just don’t know when the airlines are coming back. You don’t know when, how much steel is going to be demanded, et cetera, et cetera. So that’s, it’s, it’s difficult. And then if, if your whole industry decides not to hedge, you’re also competing against other folks in your industry. And if, if none of your pals are hedging, it kind of you’re all in the same boat. So yeah, I, I, I see what you’re saying. It’s like an opportunistic hedge right now, and it makes a lot of sense. I can also see the side that, you know, what, especially, especially airlines where they messed up the queue, imagine hedging your international jet fuel using WTI when it, and then goes minus 20 bucks versus Brent. And, and so, you know, they had a lot of bad, bad experiences in the, in the, since 2000. And, and, uh, um, is it still, still some aftertastes they think for, against, against edging, but your point’s well taken? Um, yeah, it’s, it’s, uh, it’s an art. It’s not a, it’s not a science. Uh,

Yeah, absolutely. And look, I strive to live in precedent at times at some point in the future, and that’s just not where we’re at right now. So, uh, yeah, it is, uh, you have to pick, you have to be, you have to be flexible and, and this is why we do prefer to, you know, to rely on, uh, kind of, uh, on the, on the problem, you know, I’m playing the probabilities and that, because you just don’t know. I mean, just as this, as a story on that Friday night, I get a phone call the Friday night before, you know, that Monday, when all heck broke loose and we ended up, uh, going to zero below zero, the next week, I got a phone call from a hedge fund client, uh, based on in the islands. And he said, shark, I just talked to somebody at the NYMEX and they’re there. They’re going to allow negative putts. I had to ask him to explain what an I couldn’t, I couldn’t put it together. What is a negative putts? And I just, it bamboozled me and sure enough, it’s not that we can go there again. But look, we have basis markets, West Texas, where natural gas, natural gas trading negative in West Texas or up in Alberta is nothing new. It ha it’s happened before it’s so it can happen again. So once again, buckle up, uh, for a, quite a ride.

Well, that’s, uh, I say, uh, I’ve written a 20, 20, 20 is a year that we were offered $0 puts, which means somebody is willing to pay, uh, for the right to sell something for nothing.

Yeah. It’s, it’s, it’s incredible. I, I used to joke when people ask how low can prices go? I would say, well, we know they can’t go below zero. Who knew I was wrong. I mean, it was nuts.