Natural Gas Storage Report - Feb. 6

[dan_s]

Working gas in storage was 1,923 Bcf as of Friday, January 31, 2014, according to EIA estimates. This represents a net decline of 262 Bcf from the previous week. Stocks were 778 Bcf less than last year at this time and 556 Bcf below the 5-year average of 2,479 Bcf. In the East Region, stocks were 312 Bcf below the 5-year average following net withdrawals of 143 Bcf. Stocks in the Producing Region were 187 Bcf below the 5-year average of 889 Bcf after a net withdrawal of 93 Bcf. Stocks in the West Region were 56 Bcf below the 5-year average after a net drawdown of 26 Bcf. At 1,923 Bcf, total working gas is below the 5-year historical range.

Based on the weather forecasts, the deficit will continue to expand over the next two reporting weeks, and will likely end up between 700 and 800 bcf by mid-February. Assuming normal weather thereafter, inventories will be on pace to trough at 1,000 to 1,100 bcf in March. This is EXTREMELY BULLISH for natural gas prices and (maybe more important) for NGLs.

Now the question is what happens if the weather remains colder than normal through April, like it was last year. If so, we could see natural gas make a run at $6.00.

This is very good news for UNT, RRC, XEC, EOG, GPOR, ROSE, SM, the onshore drillers (See PTEN) and the MLPs.

PS: CME (where NYMEX futures contracts are traded) raised their margin requirements for natural gas futures. I think this is the primary reason for the pullback.

[dan_s]

Analyst's Commentary:
The question now becomes whether cold weather will extend into the end of February and March—pushing inventories below 1,000 bcf—or not. And in either case, will we see rapid injections during the spring and summer in reaction to higher natural gas prices? [My take: Higher prices cannot increase gas supply in the short-run. That will only happen when E&P companies decide to shift more capital to drilling gas wells. That takes time. - dan]

In our view, natural gas prices should be supported near $5 given the base case of a 1,000 bcf trough. If cold weather pushes inventories even lower, prices may rally above $6 in the short term.

But from the longer-term perspective, the pace of inventory injections in April and May are going to be the key driver of prices. Inventory builds must increase significantly from last year’s pace to refill inventories, which will be 700 bcf or more below last year. The market anticipates it will happen, but if it doesn’t, natural gas may surprise many by rallying in the low-demand shoulder season.

[setliff]

i have seen a couple of forecasts caling for a warmer march.

[dan_s]

Frigid temperatures could have a negative impact on production numbers in the next few EIA reports, according to analysts.

"As half of November experienced 10-year low temps across the U.S., we expected some weather related production disruptions and flattish production," Tudor, Pickering, Holt & Co. Inc. analysts said in a note Monday morning. "Given record low temps in December and January, more extensive freeze-offs [are] likely to impact December and January production numbers."

While production is expected "to remain in growth mode for the foreseeable future, the next several reports are likely to show month/month (m/m) declines, as numerous wells were affected by widespread freeze-offs across the country," according to Barclays Capital analysts Biliana Pehlivanova and Shiyang Wang. "Pipeline flow reports point to a 1 Bcf/d m/m drop in production in December."

[bearcatbob]

i have seen a couple of forecasts caling for a warmer march.

At some point those of us fully enduring this bout of global warming need a break. I hope it does get warmer!

[dan_s]

Joe Bastardi now says cold next week then a warm up for 2nd half of February. Of course "warm" for Chicago means barely above freezing. However, Joe is now saying that it could get very cold again the first part of March.

Watch this video: http://www.weatherbell.com/saturday-sum ... ary-8-2014


I saw a report this morning that 78% of the Great Lakes are now covered in ice. The highest percentage in over 20 years. Al Gore told us all the polar bears would be dead by now. Soon they may be walking the streets of our northern cities. Get a big gun.

BTW Joe is the best long-range weather forecaster that I know. A lot of big oil companies pay for his service. The national weather service has a bias for forecasting warm weather. It now seems that all federal agencies have a bias for supporting the Global Warming fraud. I jumped out of my chair when Obama said that "Climate Change" was settled. I guess we should not question what comes from Washington no matter how many times they are wrong.