EIA - Natural Gas Storage Report - Sept 7

[dan_s]

Working gas in storage was 3,148 Bcf as of Friday, September 1, 2023, according to EIA estimates.
This represents a net increase of 33 Bcf from the previous week.
Stocks were 462 Bcf higher than last year at this time and 222 Bcf above the five-year average of 2,926 Bcf.
At 3,148 Bcf, total working gas is within the five-year historical range.

The storage build is 7 Bcf below my WAG; reducing the surplus to the 5-year average by 30 Bcf.

This is the 8th week in a row that the build has been below the 5-year average, very bullish if this trend continues. Next week's build should be under 50 Bcf, which compares to the 5-year average build of 80 Bcf.

There are 11 weeks left in the "Refill Season". The chance of storage getting back down to the 5-year average is zero. It would take a lot of help from the weather and the LNG export facilities ramping up to maximum capacity.

My concern is the fact that we will begin the winter heating season (mid-Nov) with over 350 Bcf more in storage than last year. It will require a colder than normal December to keep HH ngas prices over $3.00. Hope springs eternal because we have seen some big draws from storage in December before.

[ChuckGeb]

Not to be discounted is the reported significant drop in gas rigs in June and presumably continuing. The lag effect of the production drop is yet to be realized. Thus the spread between last year and also 5 year average should be expected to narrow even after refill season turns into draws. I continue to be optimistic that after winter season draws there will be an acute focus on where the increased supply will come from to fill the elevated demand from LNG export facilities coming online in 2024 and 2025. A serious bump in 2025 and hopefully an energy friendly duly elected President.

[KGardiner]

Another factor to consider is that we continue to shift from coal to gas power production. During the past 5 years the amount of gas used for power generation has risen just over 21% for a CAGR of 4.0%. Also, more folks are shifting to heat pumps for heating and cooling, so winter electric demand is likely to continue to rise slowly.

[ChuckGeb]

I don't see how winter of 23/24 can be worse than the last 8 months we have endured with subpar gas pricing. Winter is only three months and on the other side we are faced with a massive surge in demand coming from LNG plants coming online in 24/25. The recent cuts in gas drilling will be showing up in supply clearly when demand begins to surge. The industry tends to overshoot in both directions and currently the gas drillers are cutting back. what remains to be seen is of the rigs currently drilling how many are being completed and how many are going into DUC inventory. Hard to tell. The gassers we follow here tend to be well capitalized and can afford to build for the next good winter. I trimmed some gassers today and bought some 6 month Treasuries based upon hard advice of Dan and Roth. Hope they are right and am buying back in spring at a discount to what I sold for. Time will tell. And of course I am responsible for what i buy and sell. Just what i am doing FWIW.

[KGardiner]

I agree Chuck, the coming winter cannot be worse than the past one. On top of the fact that a huge portion of the current inventory surplus was due to Freeport being offline, not the weather itself.

As for myself, my energy portfolio is 12% mineral royalties, 18% pipelines and 70% upstream. Of the upstream, the total production of my portfolio is about 45% oil, 35% gas and the rest NGLs. While there is likely tremendous upside in oil, I remain concerned about the Fear of the Fed continuing to drag on the market, or even worse, they keep raising rates because oil rises, and finally trigger that recession. I definitely want oil exposure, but I also want gas exposure because I feel if things really take off and we get a cold winter, we could have major upside going into the opening of the next LNG terminal mid 2024. Finally, I want the exposure to dividends and buybacks from both oil and gas heavy producers so I have to hold the stock, as a result I have minimal cash at present.

Dan and Roth could easily be right, but it seems to me the worst for the gassers is already here and going forward I expect sideways to be the more pessimistic outcome.

Stated a different way, if a recession really does come, I want to minimize oil exposure but keep my gassers. If someone nukes the Middle East or China buys Saudi Arabia, I want to own oil. If hell freezes over this winter and somehow the Vikings win the Super Bowl, I want to own gas. But just to be safe, I’ve sided with the Cowboys and own a healthy stake in Comstock. I don’t think anyone who’s honest here in MN really thinks the Vikes have a chance.

Cheers
Kevin

[dan_s]

Good discussion of why I am long-term very bullish on natural gas. My near-term concern is just that the storage level on 12-1-2023 will be much higher than it was a year earlier and the current strip prices for December to March will not hold unless we have a cold start to winter.

I agree 100% that market forces (lower active rig count in the gas plays) will rebalance the U.S. gas market. It is likely that we see a supply deficit for U.S. ngas a year from now.

BTW Range Resources most recent slide deck has some very good slides on the macro outlook for natural gas and for NGLs.

[KGardiner]

BTW Dan I really appreciate you adding the Nat Gas Days of Supply chart from Bloomberg to the last podcast. It directly shows how growing demand impacts inventory.

Thanks
Kevin