Natural Gas Storage Report - August 25

[dan_s]

Working gas in storage was 3,350 Bcf as of Friday, August 19, 2016, according to EIA estimates. This represents a net increase of 11 Bcf from the previous week. Stocks were 275 Bcf higher than last year at this time and 350 Bcf above the five-year average of 3,000 Bcf. At 3,350 Bcf, total working gas is above the five-year historical range.

This is an extremely bullish report. Injections to storage have been more than 40% below the 5-year average for the last 16 weeks (725 Bcf compared to 1,210 Bcf). The U.S. natural gas market is going to be MUCH TIGHTER this winter. Gas in storage should be BELOW the 5-year average by year-end and we now use a heck of a lot more gas than we did five years ago.

The January 2017 NYMEX contract closed today at $3.32/mmbtu and my guess is that it will be over $3.50 when it becomes the front month contract in December. With just a normal winter we should see gas trading over $4.00/mmbtu in the first quarter of 2017.

This is also very bullish for NGLs because the big declines in supply are from the Bakken and Eagle Ford; gas which is very rich in liquids.

Natural gas and NGLS are a completely different market than oil. The U.S. has very little import capacity, except via pipelines from Canada and Canadian gas production is also on steep decline.

I CANNOT STRESS ENOUGH HOW IMPORTING IT IS FOR YOU TO KNOW THE PRODUCTION MIX OF THE COMPANIES YOU INVEST IN. I SHOW PRODUCTION MIX AND THEIR HEDGES AT THE BOTTOM OF EACH FORECAST MODEL.

[dan_s]

Tudor, Pickering, Holt & Co. estimates that US natural gas prices could average $3.75 per MMBtu in 2017.