Natural Gas Storage Report - Nov 21

[dan_s]

Working gas in storage was 3,113 Bcf as of Friday, November 16, 2018, according to EIA estimates. This represents a net decrease of 134 Bcf from the previous week. Stocks were 620 Bcf less than last year at this time and 710 Bcf below the five-year average of 3,823 Bcf. At 3,113 Bcf, total working gas is below the five-year historical range.

A triple digit draw from storage during the 2nd week of November is quite rare.

[dan_s]

The 5-year average draws from storage from November 16 to December 31 are slightly higher than 600 Bcf. However, the weather forecast is for much colder weather than "average" in the eastern 2/3rds of the U.S. Next week's draw will be another triple digit decline, compared to the 5-year average draw for the 3rd week of November of just -34 Bcf.

U.S. natural gas in storage is on-track to be less than 2,500 Bcf on December 31st. If we have a normal winter in Q1, we are definitely going to see large cities like Chicago, Cleveland and Detroit running out of gas for space heating by the end of February. Utilities will be forced to pay top dollar for gas supplies from industrial customers so they can maintain pressure in the residential gas lines.

EIA has been feeding this market a line of BS all year that we had a "glut" of natural gas supply, despite clear evidence that demand has been exceeding supply all year. I think EIA's biggest mistake was assuming that a rush of associated gas from the Permian Basin would flood the U.S. market with cheap gas.

My SWAG today is that two weeks from tomorrow EIA will report that on November 30 natural gas in storage is 800 Bcf below the 5-year average. Had you told me that back in June (a) I would not have believed it possible and (b) my guess at the gas price on Christmas Day 2018 would be $8.00/MMBtu.

This is a situation that looks like a "Train Wreck" to me. The "Mother of all Bidding Wars" for gas supply is just a few weeks away.

[hmrckstv]

Dan,

Since your three "gassers" are hedged (some more than others), how do you see this playing out with regard to their stock prices. So far the market is not liking any of the "gassers". If my memory serves me right, AR is hedged (100%) through 2019, RRC is 50+% hedged through 2019. Have you contacted these two companies lately to discuss there future plans regarding hedges? I would personally like to see less hedging in view of the current positive outlook for NG. I know that their bond holders require a certain amount of hedging but maybe that can be lessened. Your thoughts are much appreciated.

Also, do any of these two companies plane on adding more well capacity/production and hence additional volume that could take advantage of the immediate bullish pricing?

Thanks.

[dan_s]

All of the companies in the Sweet 16 are "growth companies" with double digit production growth.

They have not released their 2019 production guidance yet, but my guess is at the bottom of each company's forecast valuation model, which you can find under the Sweet 16 tab on our website. Stock valuations are the Sweet 16 are undated each weekend on the main Sweet 16 spreadsheet and they are in the monthly newsletter.

AR has ~90% of the 4th quarter natural gas hedged at $3.53. Only 18.5% of their NGLs are hedged.
100% of their 2019 natural gas (based on my forecast volumes) is hedged at $3.50. Looking at it this morning, I now think their 2019 production will exceed my forecast.

Read the profile on GDP that we sent out yesterday.