Natural Gas Storage Report - Feb. 28

[dan_s]

Working gas in storage was 2,229 Bcf as of Friday, February 22, 2013, according to EIA estimates. This represents a net decline of 171 Bcf from the previous week. Stocks were 307 Bcf less than last year at this time and 308 Bcf above the 5-year average of 1,921 Bcf.

This is a VERY BULLISH report for natural gas. We are now 90% confident that we will see storage levels dip below 2,000 bcf by the end of March. That means we should see natural gas average over $3.50/mcf for the year and it is extremely unlikely that we will see a big dip in gas prices this summer. We now use a lot more gas for power generation in the summer than we did just a couple years ago.

The dip below $2.00/mcf last summer was caused by forecasts that NG storage would fill months before winter heating season arrived. That is very unlikely to happen this summer.

[dan_s]

I just check the NYMEX strip prices for April - December NG contracts. The average is $3.67/mcf. The January, 2014 contract is trading at $4.08/mcf.

[dan_s]

I just looked at the daily weather forecasts for the next seven days. It is now fairly certain that we will have two more triple digit draws from storage and the storage level will dip below 2,000 bcf by the end of March. We may have a shot at 1,900 bcf.

This is very bullish for natural gas prices compared to just a few weeks ago.

[setliff]

the nat gas H&S that was near has been destroyed.

[dan_s]

Not sure what that means but I can tell you that I feel a lot better about using $3.50/mcf in all of my forecast models. A month ago it was not looking good for natural gas.
If winter can hang around for just a couple more weeks, the outlook for the gassers and onshore drillers will improve significantly. I think a lot of analysts will increase their full year natural gas price forecasts if storage moves below 2,000 bcf.

I worked on Cimarex Energy (XEC) this afternoon. It is a very low risk way to add more exposure to the Permian Basin and to natural gas. Their Horizontal Wolfcamp drilling program has HUGE upside, with over 1,000 low risk locations on 80 acre spacing. XEC now estimates 3.4 to 4.1 TCFE of recoverable reserves (55% gas, 25% NGL and 20% crude oil) with strong economics even at today's low NG and NGL prices.