Energy Prospectus

Working gas in storage was 1,266 Bcf as of Friday, May 16, 2014, according to EIA estimates. This represents a net increase of 106 Bcf from the previous week. Stocks were 774 Bcf less than last year at this time and 943 Bcf below the 5-year average of 2,209 Bcf.

We are now half the way through May and storage is still more than 900 billion cubic feet below the 5-year average.

This was the second weekly 100+ bcf increase in a row, so the traders reacted a bit and the front month contract went down 10 cents/mcf.

We may see six more weekly 100+ bcf increases in storage before injections start the summer decline, BUT it is clear that it is already HIGHLY UNLIKELY that storage levels will reach 3,500 bcf before next winter starts. My math shows we needed to see storage within 800 bcf of the 5-year average by May 31 for there to be any chance of reaching that level. Now it looks like we may not be within 900 bcf of the 5-year average by the end of May.

FYI: The average weekly increase in storage for mid-May to mid-June is 90 bcf After mid-June, demand for gas increases sharply as the summer heat moves into the South.

Natural gas rigs were up slightly last week but have dropped significantly year-to-date

On May 16, Baker Hughes reported that natural gas rig counts rose by three on the week, from 323 to 326.

Natural gas prices throughout 2014 are up significantly from last year, with 1Q14 prices averaging $4.72 per MMBtu compared to the 2013 average price of $3.73 per MMBtu (using the front month contract for Henry Hub natural gas). Currently, natural gas is trading at around ~$4.40 per MMBtu. However, natural gas rigs have decreased throughout 2014. At the beginning of this year, natural gas rigs drilling totaled 372. The current natural gas rig count of 326 represents a drop of 46, or 12%. Most of the decline in natural gas rigs came from the Cana Woodford (-13), the Eagle Ford (-17), and other areas outside of the major classified plays (-15).

I continue to believe that we will not see a significant increase in rigs drilling for natural gas until gas is over $6.00/mcf. Devon Energy says they will not increase Barnett Shale drilling until gas is over $7.00/mcf. The E&P companies will not pull capital from their extremely profitable oil plays to drill marginal gas wells. As a result, if we have another cold winter the gas storage in some regions could dip to critical levels. For now, the Marcellus/Utica and associated gas from the Eagle Ford are the only areas with significantly increasing gas production. - Dan