Bullish Outlook for Natural Gas

[dan_s]

A storage crisis is brewing in the natural gas market and it could lead to the kind of spike in natural gas prices that is detailed in the article Cold Winter Could Lead To Massive Natural Gas Futures Price Spike. Natural gas futures have been trading in the $4 to $4.50 range for most of January. This price range is based on end of season storage projections in the 1.1 trillion cubic feet [Tcf] to 1.5 Tcf range. While that range will be the lowest in 5 years, it will not be low enough to place serious pressure on meeting the nations heating needs from natural gas this winter. Yet even the low end of that storage range requires a warmer than normal combined February and March.

http://seekingalpha.com/article/1956431 ... urce=yahoo

This is also very bullish for NGL prices. Propane prices continue to increase. Propane is used by space heating in many homes.

[ghrcap]

I'll feel a bit more optimistic on the outlook when we get some real lift in the NYMEX 12 month forward strip. It closed today at $4.29, up 11 cents. Spot at Henry Hub and Opal, WY were at $4.58.

[ghrcap]

Today, NYMEX front month closed at $4.70, up $0.27 while the strip only made it to $4.37, up $0.10, continuing the lag. Perhaps if the cold expands to include Texas and some of the West we'll crack the code. The Southwest has been unseasonably warm.

[dan_s]

It now looks like U.S. gas in storage will continue to fall well below 1,500 Bcf and may actually text 1,000 Bcf. If that becomes obvious early in February I will be stunned if we don't see some $5.00 gas on the NYMEX strip. That said, I think the best we can hope for this year is that gas stays above $4.00 all year.

For the Sweet 16, higher NGL prices are more important. Propane demand is way up. There is now a very good chance that NGLs average over $40/bbl this year. That will be a nice uplift for revenues in the shales.