Energy Prospectus

Stifel on September 20: "Adjusted for weather, U.S. natural gas markets appeared to be 4 Bcf/d tighter y/y during last winter's extreme El-Nino. Aside from last week's report, this summer's below-normal storage injections have confirmed the same trend. Strong demand growth from power generation, Mexican and LNG exports, and petrochemical feedstock, coupled with declining supply, have improved market fundamentals over the past year. We project storage will end the injection season at 3.9 Tcf. While near the high end of the 5-year range, this would eliminate the y/y surplus and further reduce the overage vs the 5-year average. Assuming 10-year average weather, the surplus could swing to a shortfall in 1Q17, causing us to raise our gas price forecast."

As I have been telling you for months, the North American natural gas market is going to be a lot tighter this winter.

I think the market is at least 5 Bcfpd tighter and getting tighter each day.

Storage will be near the top of the 5-year range when winter begins, BUT (a) production continues to decline and (b) we now consume A LOT MORE gas per day than we did five years ago. Demand is going to keep going up (see slide 11 from the presentation I made on September 16th in Houston).

It has taken awhile for the Wall Street Gang to figure this out. When they do, the "herd" can move very quickly. NOW is the time to add a lot more exposure to companies that produce a lot of natural gas and NGLs.

natty over $3 now and gassers not reacting. gpor up 25c and rrc up 12c

Crude oil trades on a global market. The price is set by speculative traders that are influenced by hundreds of variables, not the least of which are their emotions.

Natural gas, and to a lesser extent NGLs, trade on regional markets. Their prices are more influenced by supply / demand fundamentals. Based on a few reports that I've gotten this week, the Wall Street Gang is starting to see the rapidly tightening North American gas market. Two weeks ago I posted that I thought we'd see gas over $3.00/mmbtu by Halloween and over $3.50 by Christmas. If gas stays over $3.00 through the end of September, I think we see $3.50 by Thanksgiving. Winter weather will determine how high it goes.

Go back and look at slide 5 of the presentation I made at our 9/16 luncheon in Houston (you can download it from the website). You can see that when natural gas supply/demand tightens the price can move a lot higher and it can happen very fast.