Natural gas storage report as of August 9

[dan_s]

Working gas in storage was 3,241 Bcf as of Friday, August 3, 2012, according to EIA estimates. This represents a net increase of 24 Bcf from the previous week. Stocks were 465 Bcf higher than last year at this time and 386 Bcf above the 5-year average of 2,855 Bcf.

Today's storage report is bullish. The amount of gas going into storage continues to be lower than the 5-year average and lower than all the "experts" predictions. Each week I gain more confidence that the amount of natural gas in storage will move back into the 5-year range early this winter. If it does by early January, we are all but certain to see gas prices over $4/mmbtu early next year.

$4 gas is still not high enough to make drilling for gas in most areas of North America economic. Therefore, I do not see a significant increase in demand for drilling rigs until gas is over $5/mmbtu. This is good news for all of the E&P companies, even those focused on liquids. It keeps down drilling costs and completion costs.

If the weekly injections to storage continue to come in well below the 5-year average, natural gas prices will hold up. Last week I predicted gas prices might dip down to $2.50/mcf but now I am backing off that a bit.

IMO the best way to add more gas to your portfolio is to stick with companies like our Sweet 16 Growth Portfolio companies CRK, CRZO, EOG and SM that are currently focused on increasing liquids production and reserves but also have a lot of low risk natural gas reserves. If gas prices do push over $5/mcf they can quickly adjust their capital spending.

I recommend you all read the profile on CRK that we send out in yesterday's EPG Flash Alert.