Energy Prospectus

The EIA actual figures were recently released through October an such confirmed what the estimated/anecdotal information was showing during that period.Dry market production averaged 70.7 bcf/d for October. This is a month-on-month decline of 1.2 bcf/d and is a drop of 3.4 bcf/d from the same month a year before.

Estimates since then have production around 70.5 bcf/d in November and December. So the precipitous decline during this past year “may” have slowed the pace a bit into the end of 2016. Nonetheless, dry marketed production is down by 4.7 bcf/d from the all-time peak of 75.4 bcf/d in September 2015.And a year-on-year production deficit of 3 to 4 bcf during 2017 (if that holds) will imply that the market will have to keep prices relatively high enough to prevent high levels of coal-to-gas fuel switching in the face or rising LNG exports, Mexican exports and increased industrial demand next year.

The last five weeks of 2016 (weeks ending 12/2, 12/9, 12/16, 12/23 and 12/30) had total draws from natural gas storage of 684 Bcf. This compares to the 5-year average draws for the last five weeks of the year of 446 Bcf. The 238 Bcf difference pushed storage below the 5-year average.

There were only two weeks that were significantly colder than normal (12/16 and 12/23). A 238 Bcf higher draw for December is a HUGE deviation from "normal".

The point that I'm trying to make here is that more than the weather goes into the natural gas supply & demand. U.S. production is down and non-weather related demand is up and expected to go 3.5 Bcf per day higher YOY in 2017.

Yes, we are going to have a milder than normal January and draws from storage may indeed be below the 5-year average, BUT I still think just "near-normal" temperatures in the first quarter will leave ending natural gas storage heading into April WAY BELOW where storage was a year ago.

Lots of "debate" between the speculators who set the gas price, which is why we are seeing these big swings in the NYMEX futures contracts.