Learn more about the US natural gas market (video)

[dan_s]

Watch this short video: https://www.youtube.com/watch?v=COfe7_sXPYM

I agree with the speaker that US natural gas prices over $5.00/MMBtu will not last beyond the winter months unless we have a colder than normal winter that causes ngas storage be drawn down below base level gas. Drawing base level gas is expensive and refilling storage before the next winter will be additional demand.

However, even if we have a mild winter, I believe we have a "structural change" in the US natural gas and NGL markets. The US is no longer grossly oversupplied and we now export ~20% of our produced gas. Plus, export capacity will continue to grow and global demand for US gas will keep gas prices over $3.00/MMBtu. My forecast/valuation models all assume that US natural gas will average $3.50/MMBtu after 2021.

The large gassers, including AR, EQT and RRC (all in the top ten ngas producers) are not going to ramp up drilling programs and flood the market. For two reasons, all of their Tier One leasehold is now held by production and they are all Marcellus/Utica producers in an area that lacks sufficient pipeline capacity to increase production. These three companies are going to continue to generate a lot of free cash flow.

If we have a cold December we could see much higher natural gas prices because we will be starting the winter with a insufficient amount of gas in storage to make it through a colder than normal winter. AR, EQT and RRC have outstanding marketing teams, so they will be able to "harvest" the very high spot market gas prices that I expect to see during the winter. See the winter weather forecasts that I posted earlier.

The Permian Basin, Eagle Ford in South Texas and Haynesville in Louisiana all have ample pipeline takeaway capacity. This is why I like CRK, GDP and SBOW.