Energy Prospectus

Working gas in storage was 1,196 Bcf as of Friday, February 28, 2014, according to EIA estimates. This represents a net decline of 152 Bcf from the previous week. Stocks were 908 Bcf less than last year at this time and 758 Bcf below the 5-year average of 1,954 Bcf. In the East Region, stocks were 370 Bcf below the 5-year average following net withdrawals of 82 Bcf. Stocks in the Producing Region were 273 Bcf below the 5-year average of 754 Bcf after a net withdrawal of 43 Bcf. Stocks in the West Region were 114 Bcf below the 5-year average after a net drawdown of 27 Bcf. At 1,196 Bcf, total working gas is below the 5-year historical range.

This sure makes me look smart! I forecast that storage would be 1,200 bcf by the end of February.

I now think that storage level will be under 800 bcf by the end of March. Next week's report should show a draw of around 150 bcf. Several storage locations are now getting close to empty and local utilities are worried about another cold wave.

I copied this post from Investor Village:

Is the Natural Gas market broken??

1. Gas storage is, as of today down to about 1000bcf, lower than it has been in several years. Canadian storage is, relatively, even lower.
2. Weather forecasts out 8-14 days indicate much colder than normal levels for the entire 1st half of March. This says storage could end the season at 800bcf, or even lower.
3. This all means that over the 7 months beginning in April, there will be a need to add some 3 tcf to storage--a rate that has never before been attained. the daily rate will need to be some 14bcf, some 60%-70% higher than last year.
4. Imports from Canada will be down--they have their own problems with storage refill.
5. The natural gas rig count is falling--apparently a $4.50 12 month strip is not sufficient to redirect rigs to gas drilling. [As I have stated in the newsletter several times: None of the E&P companies will allocate capital to drill for gas until they can make a profit and it will take $7.00/mcf to make even a reasonable profit in all of the dry gas shale plays. It will take $10.00/mcf to come close to the profit margins of today in the oil shale plays. - Dan]
6. For environmental reasons lots of coal fired plants are being decommissioned. hydro capacity in the west is limited due to drought.

Despite all the above, gas prices remain below what many analysts believe are necessary to make gas directed drilling profitable. thus the falling rig count. Because of rapid decline rates, it is estimated that without new capacity being added, gas production would fall 20-25%. [Natural gas production in the Eagle Ford and Marcellus/Utica is going up, but is it enough to offset declines in the Barnett, Fayetteville and Haynesville. Haynesville is on steep decline. - Dan]

Why is this not a train wreck in process? Is there time to change it? [My take is that the traders did not see this coming and they are waiting to see how the refill season starts. Based on the March weather forecast, we may not see refill starting until mid-April. What happens if we have a hot July / August period with increased demand for power generations? It is quite possible now that the s__t will hit the fan in Q3. - Dan]