Energy Prospectus

Working gas in storage was 3,360 Bcf as of Friday, December 23, 2016, according to EIA estimates. This represents a net decline of 237 Bcf from the previous week. Stocks were 413 Bcf less than last year at this time and 79 Bcf below the five-year average of 3,439 Bcf. At 3,360 Bcf, total working gas is within the five-year historical range.

Thank you Mother Nature!

Since the end of April, 2016 the net increases - decreases in natural gas storage have been 735 Bcf. This compares to the 5-year average of 1,659 Bcf for the same 34 weeks. That difference of 924 Bcf is just under 3.9 Bcf per day.

Over the last 24 months, U.S. natural gas production has declined by about 2 Bcf per day and U.S. natural gas demand (including exports) has increased by more than 4 Bcf per day.

In the last five years, U.S. natural gas demand (including exports) has increased by close to 9 Bcf per day.

To put these numbers into perspective, total U.S. natural gas demand (including exports) is now slightly over 80 Bcf per day. U.S. natural gas production is approximately 76.5 Bcf per day. The difference is made up by imports from Canada. BTW Canadian gas production is down from the peak in 2015.

It makes sense that because we consume more gas than we did five years ago, we should have a lot more gas in storage at the beginning of the winter heating season than the 5-year average. January & February are now expected to be colder than normal over most of the U.S. See daily update at http://www.weatherbell.com/premium/

Refilling storage after this winter's heating season will be top priority for the utility companies that deliver gas to your home. This, plus increasing exports to Mexico and LNG via ship, means a MUCH TIGHTER North American natural gas market in 2017.

The next two natural gas storage reports, for weeks ending 12/30/16 and 1/6/17, should be near the 5-year average. If the national weather service forecasts for January 7 to 31 are accurate, we will then see some VERY BIG draws from storage. If storage goes over 200 Bcf below the 5-year average by the end of January, I expect the NYMEX strip for the next six months to go over $4.00/MMBtu.

Propane inventories have also dropped sharply in December. They are still high, but moving closer to normal.

Increasing demand for propane and ethane in 2017 will do wonders for NGL prices.

It is VERY IMPORTANT that you know the production mix of the companies you own. I show the production mix at the bottom of each forecast model on the EPG website.

My SWAG is now that natural gas storage will be ~3,200 Bcf on 12/31/2016.

Normal winter weather for the first quarter should push storage down to ~1,400 Bcf by 3/31/2017. That would be ~230 Bcf below the 5-year average. Even a few weeks of below normal temps in January should make this very interesting.

The thing to remember is that this is not all about the weather. Gas production is down and demand is up.