Energy Prospectus

The week ending January 19 s/b bullish for natural gas: https://www.wunderground.com/forecast/u ... alwx_10day I think natural gas in storage will be over 300 Bcf below the 5-year average on January 19. Still quite a bit of winter left at that point.

Last trade today for the February NYMEX contract was $2.95 today. A record draw from storage will be reported on Thursday.

Historically, when we end the winter heating season below the 5-year average it supports the price all year.

My take is that traders don't now how supply/demand is going to shake out, so they err on the low side. There are forecasts of lots of new production coming on-line in 2018, but there is also going to be a big surge in demand. Exports and industrial demand are going up BIG this year. Just exports are expected to increase by 12 Bcfpd from the end of 2017 to the end of 2020.

Actual data shows that the U.S. market has been under-supplied by 573 Bcf (1.95 Bcfpd) for the 42 weeks ending December 29, 2017 (3/11 to 12/29/2017). If you want to see the spreadsheet and how I calculate this, just send me an email.

Actual production data provided by the states (including offshore) is that gas production in September, 2017 was just barely higher than it was in September, 2015 (2,250,017 MMCF compared to 2,249,261 MMCF in 2015). Production growth has been on the rise since May, 2017 and does seem to be accelerating, but we only have actual production data through September.

I'm not ready to give up yet on my forecast that ngas will average $3.00/MMBtu in 2018.

Here's confirmation of the scenario Dan is sketching:

https://oilprice.com/Energy/Gas-Prices/ ... plode.html

I have followed Dan for years, and have drank the red coolaid.

I have followed Robry for years, and have drank the blue coolaid.

Now I am totally confused, both generally see the same elephant but now one is bullish on nat gas and the other bearish. So I sit on my hands:

Robry.."...Enormous bearishness looks to be under natgas.."

....Enormous bearishness looks to be under natgas, with natgas production surging 4.55 BCF a day YOY in the January monthlies in spite of all
the freeze-offs. The December monthlies closed with natgas production up 7.52 BCF a day YOY. I am personally out of the natgas side completely
and in big on the oil side in my E&P's.

https://www.investorvillage.com/smbd.as ... d=17867737

This is why the Sweet 16 is HEAVILY WEIGHTED to oil.

I want to be CRYSTAL CLEAR: I AM NOT BULLISH ON NATURAL GAS.

I do think U.S. storage falling way below the 5-year average by the end of the month may push the price over $3.00/MMBtu basis, that is only $18/BOE.

I do think there are a lot of different views on gas supply & demand that need to be worked out in the "real world". FEARS of massive over-supply usually do not come to pass.

As I said in the podcast, I will always have some high quality "gassers" in the Sweet 16 because it should be a balanced portfolio and have some exposure to gas just in case the consensus view is wrong, which is quite possible.

AR, GPOR and RRC are all super high quality "gassers" that can and have survived extended periods of low gas prices. BTW AR has 100% of their 2018 and most of their 2019 gas hedged at prices much higher than where the gas price is today. GPOR is now focused on increasing liquids production in SCOOP.

<<to be CRYSTAL CLEAR: I AM NOT BULLISH ON NATURAL GAS.>> To be fair, as you were detecting the downtrend for natgas injections and recalling past surprises, your posts were pretty upbeat. Maybe it would be useful to specify what "bullish" means in this context. Sometimes Robry's conclusions are obscured by his substantiating micro-data. Your forecasts tend to be more practical, but also less contingent.

The price I have been using in my forecast/valuation models has been $3.00 for a long time. Yes, the storage reports are bullish. In the past, U.S. storage falling this far below the 5-year average has caused the gas price to go way up.

If I had not pointed that out and the gas price spiked to $5.00/MMBtu as it did in early 2014 then you guys would be kicking my butt for not pointing it out.

AGAIN: I HAVE NOT WAVERED FROM MY FORECAST OF $3.00 AVERAGE GAS PRICE FOR 2018 AND 2019. That may need to be lowered, but let's wait until after the winter heating season. Take a look at a ten year chart for natural gas prices and you will see that ngas prices can change very quickly.

AR, GPOR and RRC all have hedging programs. Plus, they all produce some liquids. Hedges and higher liquids prices do insulate them a bit from low gas prices. So, if ngas averages $2.75 in 2018 it won't have a huge impact on my valuations.

Decide for yourself how negative you are on natural gas. Only you can decide if you want to move your entire energy portfolio to oil producers.