Natural Gas Storage - March 17

[dan_s]

Working gas in storage was 2,478 Bcf as of Friday, March 11, 2016, according to EIA estimates. This represents a net decline of 1 Bcf from the previous week. Stocks were 998 Bcf higher than last year at this time and 807 Bcf above the five-year average of 1,671 Bcf.

Looks like we will get one more taste of winter starting this weekend. See 3/17 update at http://www.weatherbell.com/

I would be nice to see another 100 bcf draw from storage before refills begin. Regardless, gas storage will remain well above average through the summer. Associated gas production is falling fast in the oil shale plays and supply/demand will be much tighter by next winter.

[bearcatbob]

If there is to be any help from weather for NG it is going to be from warmth - not cold.

http://www.intellicast.com/National/Tem ... ure10.aspx

From here in NE Ohio there is no sign - none - of an extended cool period into spring.

Bob

[dan_s]

http://www.wunderground.com/q/zmw:10001.5.99999

See link above. 5 to 8 inches of snow on Sunday in New York.

[mikelp]

Dan - we've seen a recent nice rally in natural gas prices off the lows. I've racked up some nice profits playing this rally in natgas off very near the bottom, by using two ETN's for swing trades.

BOIL (2x-long)

and

UGAZ (3x-long)

here' s my thinking on the LT picture for U.S. natgas supply/demand and prices...

*Political: Democrats want to shut down shale production and drilling. Hillary Clinton says if she is elected, she will shut down domestic shale oil/gas drilling, to please her far-left environmental support. Unbelievable, given she also says she will shut down the coal industry. But can you imagine what this will do to U.S. natural gas prices, once the market realizes this would happen? Of course we won't know that til November, but......the way the GOP is engaged in self destruction, I'm almost to the point of betting Hillary will be the next President. (gag) Put politics aside for a moment, and think about how can we make money off this?

*Supply/demand: a quick comment....your recent reports and predictions show even Marcellus shale gas is beginning to roll over and decline. Rig counts have collapsed. E&Ps are in survival mode. Demand is increasing with more NG power plants being built, and LNG exports increasing, and Canadian imports decreasing. The current inventory glut will be melting like an ice cream cone in August.

my question is where does your crystal ball see natgas prices to be by this fall? by this winter? $2.50? $3.00?

my thinking is this will be a near repeat of the 2012-13 cycle...when we saw natgas prices quickly recover off the lows and go much higher...except this time we have much lower rig counts...and other factors that could really push gas prices much higher

[dan_s]

The first thing to remember is that natural gas trades on regional markets. In fact, in the United States it trades on sub-regional markets. The U.S. is the world's largest consumer of natural gas (about 40% of global demand). In 2015 the U.S. consumed ~29 TCF (around 80 Bcf per day) and that included a very warm start to winter. In 2016 the U.S. is expected to consume 30.4 Tcf (around 83 Bcf per day), which includes ~1.5 Bcf per day of exports (pipeline and LNG).

So, we have a growing regional market that is expected to grow to over 100 Bcf per day by 2020.

On the supply side, U.S. production is expected to fall 4 to 6 Bcf per day this year. As you pointed out, the Marcellus is falling but the big drop is the "associated gas" in the oil shale plays like the Eagle Ford. Those oil wells do produce a lot of gas and the gas production falls faster than the oil production.

See the EIA's Drilling Productivity Report at this link: http://www.eia.gov/petroleum/drilling/#tabs-summary-2 Notice that the Eagle Ford has the highest rate of decline for both oil and gas.

All of the above points to a much tighter U.S. gas market by the time next winter starts.

Here is the "fly in the ointment": We have a LOT of gas left in storage because of the warm winter. "Working gas in storage was 2,478 Bcf as of Friday, March 11, 2016, according to EIA estimates. This represents a net decline of 1 Bcf from the previous week. Stocks were 998 Bcf higher than last year at this time and 807 Bcf above the five-year average of 1,671 Bcf. At 2,478 Bcf, total working gas is above the five-year historical range."

It looks like we will end the winter heating season with around 800 Bcf more in storage than normal. Keep in mind that "normal" keeps growing since the U.S. gas market is growing so fast. We always need lots of gas in storage locations all over the country.

Price: Natural gas under $2.00/mmbtu is an unsustainable price. Only the very Top Tier areas make sense to drill at that price. I think we will see $3.00/mmbtu by year-end, but there are a lot of moving parts to this equation. Just like the oil price, speculators set the gas price on the NYMEX futures exchange that you see quoted each day. The physical markets can be much different than that price.

Read our recent profiles on Antero Resources (AR), Gulfport (GPOR) and Range Resources (RRC). These are all solid "gassers". SM Energy (SM) is not listed as a "gasser", but they produce a lot of gas and NGLs.

PS: These companies also produce a lot of NGLs and I expect those prices to move up faster. In fact, there was a nice increase in NGL prices from Q3 to Q4.

[dan_s]

Other high quality gassers: MRD, COG and RICE