Dan,
In listening to the Comstock Quarterly Earnings Presentation, the CEO and CFO both agreed that $5 natural gas is the "Base Case" for next year. Additionally, you're using either $4.75 or $5.00 now, also.
Admittedly, I do not understand the seasonality or inventory/storage versus production numbers very well, but can you please explain why we're in refill season, where half of the Country has good weather, and where Freeport LNG is still down, and we're sitting at $9.20+/-, but somehow we're going to drop to $5. What fundamental aspects of this market are the Comstock guys (and you) looking at that are going to cause the Natural Gas market to drop in half?
Thanks
Scott
2023 Gas Prices
Re: 2023 Gas Prices
Demand for natural gas is VERY SEASONAL.
> From April to October supply has been exceeding demand (including exports) by ~8 to 10 Bcfpd, with the excess going to storage.
> From November to March demand has been exceeding supply by 12 to 15 Bcfpd, draining storage.
Over the last few years there has been a SIGNIFICANT increase in demand for ngas for power generation and LNG exports.
Supply (thanks to lack of spending on infrastructure spending) has not been able to keep up with demand growth.
Winter demand increases the last two winters due to colder winters and more areas getting rid of coal fired power plants.
The war in Ukraine keeps LNG exports at maximum capacity.
All we know now is that ngas prices in the U.S. will stay much higher than normal through March, 2023. I think the price could go to $15 or higher in Q1 2023, but it will pull back in April. I believe the ngas price will stay over $6.00 if we have a normal winter because storage will be drained below 1,000 Bcf. That sounds like a lot of gas, but storage has not been that low in over ten years. If storage drains faster than expected, I will be increasing the full-year 2023 price in my models.
I am just assuming $5.00 average for 2023 to be conservative. It is always easier to up. The 2023 strip is closer to $6.00.
Keep in mind that the U.S. has massive natural gas resources. Hang tough on the "gassers". The next three quarters are going to be record profits. Comstock's Q1 2023 results could include operating cash flow over $1 billion.
> From April to October supply has been exceeding demand (including exports) by ~8 to 10 Bcfpd, with the excess going to storage.
> From November to March demand has been exceeding supply by 12 to 15 Bcfpd, draining storage.
Over the last few years there has been a SIGNIFICANT increase in demand for ngas for power generation and LNG exports.
Supply (thanks to lack of spending on infrastructure spending) has not been able to keep up with demand growth.
Winter demand increases the last two winters due to colder winters and more areas getting rid of coal fired power plants.
The war in Ukraine keeps LNG exports at maximum capacity.
All we know now is that ngas prices in the U.S. will stay much higher than normal through March, 2023. I think the price could go to $15 or higher in Q1 2023, but it will pull back in April. I believe the ngas price will stay over $6.00 if we have a normal winter because storage will be drained below 1,000 Bcf. That sounds like a lot of gas, but storage has not been that low in over ten years. If storage drains faster than expected, I will be increasing the full-year 2023 price in my models.
I am just assuming $5.00 average for 2023 to be conservative. It is always easier to up. The 2023 strip is closer to $6.00.
Keep in mind that the U.S. has massive natural gas resources. Hang tough on the "gassers". The next three quarters are going to be record profits. Comstock's Q1 2023 results could include operating cash flow over $1 billion.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group