Natural Gas

[dan_s]

This article raises a lot of good points BUT I believe there is another very important story about to unfold. http://www.oilgasmonitor.com/can-natura ... pand/6503/

I believe it is now all but certain that U.S. natural gas in storage will end the heating season under 1,000 bcf. I cannot remember the last time it has been that low. That will be more than 800 bcf below the 5-year average in early April. Canadian gas storage is also going to be at rock bottom.

Here are a few things to keep in mind:
> Utilities must refill storage before next winter and they will pay any price to make sure they have enough gas for their customers. This could result in bidding wars for gas that is not under contract already. They can also buy gas futures contracts and take delivery.
> E&P capital budgets are set for 2014 and it will take much higher gas prices to get them to pull rigs out of the very profitable oil shale plays. No company will increase drilling in the dry gas plays (Barnett, Haynesville and Fayetteville) unless they are certain of much higher gas prices. Reallocation of capital is a very big deal at all publicly traded E&P companies. It requires board approval and there are a lot of logistics to work out. CEOs don't just walk in one day and announce we are going to drill a bunch of gas wells next month.
> Assuming gas in storage dips below 1,000 bcf and we have a normal summer, the gas available for storage should be about the same as last year. In 2013, we went from a low of 1,673 bcf mid-April to 3,834 bcf by mid-November, a 2,161 increase.
> Canada also has to refill storage and they haven't been drilling any gas wells. They will have less gas to send us and the U.S. has no other import options.
> We had zero weather related supply disruptions last summer. What happens when a hurricane enters the GOM or we have a heat wave that drives up gas demand for power generation?
> If we reach next winter with ~3,200 bcf in storage I think we will see very high natural gas prices by year-end.

Not sure how this will plays out, but it is going to be quite interesting. A cold start to March could set off a major spike in gas prices. No matter what, revenues from the sale of natural gas and NGLs are going to be much higher this year for all of our portfolio companies.

[dan_s]

In light trading on Monday, the March contract closed over $5.45/mmbtu.

Long-Range weather forecasts now show cold returning to Great Lakes by end of February. Looks like March will come in like a lion.