Natural Gas Storage Report - Nov 26

[dan_s]

Working gas in storage was 3,814 Bcf as of Friday, November 26, 2010, according to EIA estimates. This represents a net decline of 23 Bcf from the previous week. Stocks were 23 Bcf less than last year at this time and 347 Bcf above the 5-year average of 3,467 Bcf.
Analysis from Natural Gas Weekly:
 Storage Analysis – This week's withdrawal was slightly less than our 28-38 Bcf forecast and below the Street consensus of a 28 Bcf. An injection of 14 Bcf in the Producing region was in line with our expectations, while withdrawals of 16 Bcf in the Consuming East and 21 Bcf in the Consuming West were slightly less than our projections.

 Weather – Temperatures last week, based on customer-weighted gas home heating degree days (HDD's), were ~22% cooler than last year, ~3% warmer than the 10-year average, and ~29% colder than the prior week. Winter to date (November 1st through November 25th), which accounts for ~12% of total weighted HDD's in an average winter; temperatures have been 4% warmer than the 10-year average.

 Coal to Gas Switching – Should remain the effective “clearing mechanism” for the North American supply/demand balance in 2011. Coal to gas switching last year totaled ~1.1 Tcf in aggregate with composite spot natural gas prices averaging $3.78/MMBtu. In 2010, tempered by the hottest summer on record, we project aggregate coal to gas switching will be just over 0.6 Tcf but, assuming a return to normal temperatures, will again be closer to 1.0 Tcf (or ~2.7 Bcf/d) in 2011. However, our $4.25/MMBtu composite spot natural gas price forecast next year is underpinned by our projection that Central Appalachian coal prices will average $65/ton versus ~$55/ton in 2009. Importantly, any upside to our $4.25/MMBtu forecast next year, apart from higher coal prices, would be driven by a tighter supply/demand balance than we are currently projecting and would have to tighten by at least 2.7 Bcf/d to be priced above coal, or to eventually reach $5.25-5.50/MMBtu. If the supply/demand balance were to be tighter than currently projected, this would most likely be the result of rig efficiency dropping sharply versus our current more flat trajectory. If rig efficiency did drop 20% by the end of next year, then the supply/demand balance could tighten by 2.7 Bcf/d by the end of 2011 but this would still put the full-year average well below the $5.25-5.50/MMBtu level to price natural gas above $65/ton Central Appalachian coal.