Working gas in storage was 3,288 Bcf as of Friday, July 29, 2016, according to EIA estimates. This represents a net decline of 6 Bcf from the previous week. Stocks were 389 Bcf higher than last year at this time and 464 Bcf above the five-year average of 2,824 Bcf. At 3,288 Bcf, total working gas is above the five-year historical range.
This is VERY BULLISH for natural gas and NGLs.
HOT summer for remainder of August and well into September will push natural gas over $4.00/mmbtu by December.
My Top Picks for "gassers" are AR, GPOR and RRC. Also, EQT looks good.
Higher gas and NGL prices are great news for all of our model portfolio companies. Upstream MLPs like MEMP and VNR produce a lot of gas and NGLs.
Natural Gas Storage Report - August 4
Natural Gas Storage Report - August 4
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Natural Gas Storage Report - August 4
The first quarter 2017 NYMEX contracts for natural gas are now all trading at over $3.30/mmbtu. If the next three or four weekly reports show little or no increase in gas in storage, I believe Q1 gas will move up to $4.00/mmbtu. The January NYMEX contract will be the "front month" by the end of November. There is now a very good chance that we see $3.50/mmbtu has the "headline" gas price in December.
Gas production is falling rapidly in all of the oil shale plays (Eagle Ford, Bakken, Permian). "Associated gas" from oil wells is very rich in NGLs. This means the U.S. NGL market is tightening, which is why we have seen much higher NGL prices in Q2 than we had in Q1.
It is VERY IMPORTANT that you know the production mix of the companies you own. I break them out at the bottom of each forecast model.
Most companies do not hedge their NGLs, so price increase go straight to the bottom line (less production taxes).
Gas production is falling rapidly in all of the oil shale plays (Eagle Ford, Bakken, Permian). "Associated gas" from oil wells is very rich in NGLs. This means the U.S. NGL market is tightening, which is why we have seen much higher NGL prices in Q2 than we had in Q1.
It is VERY IMPORTANT that you know the production mix of the companies you own. I break them out at the bottom of each forecast model.
Most companies do not hedge their NGLs, so price increase go straight to the bottom line (less production taxes).
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Natural Gas Storage Report - August 4
From EnerCom
Natural gas inventory is cyclical in nature, to the point where the two cycles are broken into “withdrawal season” and “injection season.” Both are common benchmarks among followers of the natural gas sector.
The “S-curve” that emanates from this cyclical nature helps describe natural gas inventory in a very consistent manner. However, that cycle doesn’t always hold true, as we learned today. In the middle of natural gas injection season, the EIA reported a withdrawal of 6 Bcf from storage. This represents the first withdrawal during the injection season since 2006. This week’s withdrawal compares to the 38 Bcf injection from the comparable week last year and the 5-year average of a 52 Bcf injection. The question remains, how big of a deal is this and what does it mean for natural gas going forward?
The U.S. is experiencing one of the hottest summers on record across the board, and that means that air conditioning units are running at an increased rate this year. Heating and cooling make up a large percentage of natural gas usage, and the increased use of air conditioning may very well be influencing the natural gas market. Last week’s weather was 11% and 27% warmer than the comparable week last year and the 5-year average, respectively. Since May, weather has been 7% and 8% warmer than last year and the 5-year average, respectively. And the surprises may not be over yet, with approximately 49% of cooling degree days (CDDs) still in front of us for the remainder of the summer.
EnerCom Analytics has been looking at natural gas production and storage as it relates to rig efficiencies. During this year’s “injection season,” there has been an average of 87 gas rigs working. Last year during the same period, there were 220 rigs operating in the U.S. Based on the slope of the build vs. last year, holding all else equal, operators are ~50% more efficient with the rigs that are working. This is a result of several potential catalysts.
Ever since the decline in commodity prices, companies have high-graded assets and current drilling activity is focused on the best rock and best acreage positions for each company, with the best crews employed as the operators of the drilling rigs and well completion equipment.
In recent years, companies seem to have surmounted the learning curve and are now advancing drilling and completion practices to push the limits of lateral lengths of wells, increase EURs, and generate higher IP rates. And Mother Nature’s apparent fever has increased temperatures across the country giving support to the demand side of the equation.
Natural gas inventory has been hovering just above the 5-year maximum for most of 2016, in what most analysts term as a surplus. Even with the rig efficiencies exhibited by the dotted orange line, the storage may come right back in line with 2015 actuals and the inside the 5-year historical range around the October/November time period. If we get additional support from Mother Nature, we could see it our storage levels return to “normal” levels sooner.
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My Take: Traders seem to forget that the U.S. natural gas market is much larger (~8 Bcf per day) than it was five years ago. The utility companies MUST therefore keep more gas in inventory to insure they meet customer demand and that includes fuel for gas fired power plants. If a natural gas company lets the pressure in their residential delivery system fall below a certain pressure all hell breaks loose and they can face serious fines. Utilities serving the New York area have been forced to pay over $50/mmbtu during previous winters to meet residential demand.
In my opinion, the "obsession" with comparing the storage level to the 5-year average is out-of-date. If the storage level is below 4 Tcf when winter starts we could see much higher natural gas prices during the first quarter, with just a normal winter.
Natural gas inventory is cyclical in nature, to the point where the two cycles are broken into “withdrawal season” and “injection season.” Both are common benchmarks among followers of the natural gas sector.
The “S-curve” that emanates from this cyclical nature helps describe natural gas inventory in a very consistent manner. However, that cycle doesn’t always hold true, as we learned today. In the middle of natural gas injection season, the EIA reported a withdrawal of 6 Bcf from storage. This represents the first withdrawal during the injection season since 2006. This week’s withdrawal compares to the 38 Bcf injection from the comparable week last year and the 5-year average of a 52 Bcf injection. The question remains, how big of a deal is this and what does it mean for natural gas going forward?
The U.S. is experiencing one of the hottest summers on record across the board, and that means that air conditioning units are running at an increased rate this year. Heating and cooling make up a large percentage of natural gas usage, and the increased use of air conditioning may very well be influencing the natural gas market. Last week’s weather was 11% and 27% warmer than the comparable week last year and the 5-year average, respectively. Since May, weather has been 7% and 8% warmer than last year and the 5-year average, respectively. And the surprises may not be over yet, with approximately 49% of cooling degree days (CDDs) still in front of us for the remainder of the summer.
EnerCom Analytics has been looking at natural gas production and storage as it relates to rig efficiencies. During this year’s “injection season,” there has been an average of 87 gas rigs working. Last year during the same period, there were 220 rigs operating in the U.S. Based on the slope of the build vs. last year, holding all else equal, operators are ~50% more efficient with the rigs that are working. This is a result of several potential catalysts.
Ever since the decline in commodity prices, companies have high-graded assets and current drilling activity is focused on the best rock and best acreage positions for each company, with the best crews employed as the operators of the drilling rigs and well completion equipment.
In recent years, companies seem to have surmounted the learning curve and are now advancing drilling and completion practices to push the limits of lateral lengths of wells, increase EURs, and generate higher IP rates. And Mother Nature’s apparent fever has increased temperatures across the country giving support to the demand side of the equation.
Natural gas inventory has been hovering just above the 5-year maximum for most of 2016, in what most analysts term as a surplus. Even with the rig efficiencies exhibited by the dotted orange line, the storage may come right back in line with 2015 actuals and the inside the 5-year historical range around the October/November time period. If we get additional support from Mother Nature, we could see it our storage levels return to “normal” levels sooner.
-----------------------
My Take: Traders seem to forget that the U.S. natural gas market is much larger (~8 Bcf per day) than it was five years ago. The utility companies MUST therefore keep more gas in inventory to insure they meet customer demand and that includes fuel for gas fired power plants. If a natural gas company lets the pressure in their residential delivery system fall below a certain pressure all hell breaks loose and they can face serious fines. Utilities serving the New York area have been forced to pay over $50/mmbtu during previous winters to meet residential demand.
In my opinion, the "obsession" with comparing the storage level to the 5-year average is out-of-date. If the storage level is below 4 Tcf when winter starts we could see much higher natural gas prices during the first quarter, with just a normal winter.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group