Energy Prospectus

Working gas in storage was 2,744 Bcf as of Friday, May 18, 2012, according to EIA estimates. This represents a net increase of 77 Bcf from the previous week. Stocks were 750 Bcf higher than last year at this time and 753 Bcf above the 5-year average of 1,991 Bcf.

Obviously, oversupply is still the primary issue but I am slightly more bullish (or less bearish) on NG prices than I was six weeks ago. It still looks like storage will fill early this year and September/October could see gas-on-gas competition push prices much lower. However, I now think we are just a normal winter from NG returning to a $4-$5 range. Very hot weather in July & August would help NG prices a lot.

Dan or anybody want to comment on this argument about the economics of shale drilling?
It cries out for comment.

<<http://www.zerohedge.com/print/448238

1. Most of the gassers hedge a lot of production so outlook for the industry is not as bad as the article implies.

2. Lot of gas is now produced by the MLPs, which hedge almost all of their gas.

3. There are very few pure gassers. CHK is a unique situation but they also have a lot of oil production and liquids reserves. They will be forced to sell a lot of properties and will be much smaller after this year but I doubt they will go BR. IMO what CHK has in the Eagle Ford and Anadarko Basin has "Fire Sale" value of at least $20 Billion.

4. The breakeven price for all of the shale gas plays is around $3.50 to $4.00 per mcf. Marcellus Shale is the lowest. Again, there are very few pure dry gas wells being drilled today. Focus today is on the more liquid prone areas.

5. With a normal winter, the gas storage issue should go away. September/October could see low gas prices but no way will they go to zero. I can see a dip below $2/mcf but it will not last long. Keep in mind that the majors still produce a lot of gas and they will shut in gas before they give it away. We choked back our gas production during several summers when I worked at Hess. The large-caps will deal with the over-supply situation. Also, keep in mind that a couple hurricanes in the GOM may solve it anyway.