Art Berman: "A year ago, most analysts were bearish about natural gas prices. I wrote that natural gas prices might double and they did. Today, most analysts are again bearish about gas prices and again, I think that they are probably wrong at least for 2017."
As I have been telling you for months in my weekly podcasts, the U.S. natural gas market is much tighter than people think it is.
Read this: http://www.artberman.com/strong-natural ... pply-2017/
U.S. Natural Gas and NGL Markets
U.S. Natural Gas and NGL Markets
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: U.S. Natural Gas and NGL Markets
"The fundamentals for natural gas may be aligning for a more bullish price outlook, but producers are taking their time responding. A report from IHS Markit in mid-May noted that Lower 48 U.S. gas production averaged just 70.2 billion cubic feet per day (Bcf/d) during April. This was the lowest mark in two months and 3.5% lower than the year-ago period, but still a bit higher than production tallies at the beginning of 2017. Production is lagging despite a higher rig count, strengthening the outlook for prices." - Hart Energy 5/18/2017
Read this: http://www.epmag.com/gas-producers-slow ... MkI0In0%3D
The commodities group at Société Générale (SocGen) said in a May 12 report on U.S. natural gas drivers that “the overarching market optics [storage/daily power loads] look normal to bearish, but the underlying fundamentals and near-term outlook look very bullish.”
Read this: http://www.epmag.com/gas-producers-slow ... MkI0In0%3D
The commodities group at Société Générale (SocGen) said in a May 12 report on U.S. natural gas drivers that “the overarching market optics [storage/daily power loads] look normal to bearish, but the underlying fundamentals and near-term outlook look very bullish.”
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: U.S. Natural Gas and NGL Markets
Exports to Mexico are increasingly a key factor in gas demand. Between August 2016 and March of this year, net Mexico exports averaged 4 Bcf/d; in 2015, they averaged less than 3 Bcf/d, according to SocGen. The analysts expect Mexico exports to ramp to 5 Bcf/d by first-quarter 2018, but noted that downstream expansions are needed to provide ultimate full market access.
While production growth from the Northeast has been hampered by the Rover restrictions as well as other exit capacity concerns, the SocGen analysts said they are watching gas growth from the Permian and revitalized drilling in the Haynesville as “critical contributors” to their near-term growth outlook. They think that producers are cautious about price and infrastructure capacity, and therefore may be slow to ramp up production. This could allow for tightened fundamentals to linger, “supporting sustained upside price pressure through 2018.”
While production growth from the Northeast has been hampered by the Rover restrictions as well as other exit capacity concerns, the SocGen analysts said they are watching gas growth from the Permian and revitalized drilling in the Haynesville as “critical contributors” to their near-term growth outlook. They think that producers are cautious about price and infrastructure capacity, and therefore may be slow to ramp up production. This could allow for tightened fundamentals to linger, “supporting sustained upside price pressure through 2018.”
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: U.S. Natural Gas and NGL Markets
Dan, It seems to me that Wall Street doesn't believe that the gas market is tightening.I think there is a great opportunity for our group to define the dynamics of the gas market. We need to get away from weather comments about cold or warm weather in the Northeast. We need to get a better understanding of supply and demand. As a 14 year owner of Range, I have great respect John and Jeff. Not long ago RRC was approaching 1 bcfe/day. Now RRC is likely to go above 2 bcfe/day in 3Q. It seems everything reported in RRC's 1Q leads to further price pressure and a continued supply imbalance into the future. They are not the only company increasing production at 20%. I am taking the supply side and hoping you will come up with a solid argument why demand will force prices higher. Hopefully LNG demand, Mexico, Utility and Industrial demand will prove me wrong, but I think when RRC talks about wells averaging 31.4 mmcfe/day the market thinks supply will satisfy demand. Interesting there are now 99 more rigs drilling for gas today in contrast to August/ September of 2016. Hope the group will participate in this discussion.
Re: U.S. Natural Gas and NGL Markets
https://www.eia.gov/dnav/ng/hist/n9070us2m.htm
Go to the link above and you will see that U.S. natural gas production is below were it was a year ago. Scroll down and look at the production by month. It is very important to remember that IEA weekly production numbers are "SWAGs". They are not actuals. The table at the link above is actuals through February, 2017. The Federal government (EIA) does not have a good handle on gas production. Until actual data from the states comes out in 60 to 90 days, we do not know actual production.
Keep in mind that February, 2016 had 29 days. From the table here is what you will find:
During January & February of 2016, U.S. dry gas production was 73.987 BCF per day
During January & February of 2017, U.S. dry gas production was 71.370 BCF per day
As I have told you dozens of times in my weekly podcast, I thought U.S. production would be 2.0 to 2.5 per day less in 2017 than in 2016. Looks like my SWAG was pretty darn close.
The reason for this is because Eagle Ford gas has dropped off of a cliff. It accounts for almost all of the decline.
On the demand side, demand will be up 2.5 Bcfpd and a big chunk of that is exports. LNG and via pipeline to Mexico. < See slide #8 of my May 18 podcast, which you can view on the EPG Home Page. This is not a number pulled out of my rear. It is from a detailed report prepared by Simmons & Company, a highly respected research firm.
A four BCF per day tighter gas market is a BIG DEAL.
PLUS, this year the utility companies MUST put more gas into storage before next winter. That adds about 2 BCF per day demand from now until the end of October. Many people do not recognize that refilling storage is not an option. IT MUST HAPPEN. Gas utility companies are required by law to maintain the pressure in gas distribution systems that bring gas to our homes. The only way for them to meet this requirement is to have enough gas in storage. It is the competitive bidding of utility companies against each other for gas supply that causes big price spikes.
Read the Art Berman article careful. He does a good job explaining why we have a good chance of high gas prices in Q4.
Let me be PERFECTLY CLEAR: The United States has HUGE natural gas reserves. It has more than enough to supply our gas demand for over a hundred years. BUT... reserves in the ground and current production capacity are two different things. Over the next nine months, Art and I see demand exceeding "production capacity".
Go to the link above and you will see that U.S. natural gas production is below were it was a year ago. Scroll down and look at the production by month. It is very important to remember that IEA weekly production numbers are "SWAGs". They are not actuals. The table at the link above is actuals through February, 2017. The Federal government (EIA) does not have a good handle on gas production. Until actual data from the states comes out in 60 to 90 days, we do not know actual production.
Keep in mind that February, 2016 had 29 days. From the table here is what you will find:
During January & February of 2016, U.S. dry gas production was 73.987 BCF per day
During January & February of 2017, U.S. dry gas production was 71.370 BCF per day
As I have told you dozens of times in my weekly podcast, I thought U.S. production would be 2.0 to 2.5 per day less in 2017 than in 2016. Looks like my SWAG was pretty darn close.
The reason for this is because Eagle Ford gas has dropped off of a cliff. It accounts for almost all of the decline.
On the demand side, demand will be up 2.5 Bcfpd and a big chunk of that is exports. LNG and via pipeline to Mexico. < See slide #8 of my May 18 podcast, which you can view on the EPG Home Page. This is not a number pulled out of my rear. It is from a detailed report prepared by Simmons & Company, a highly respected research firm.
A four BCF per day tighter gas market is a BIG DEAL.
PLUS, this year the utility companies MUST put more gas into storage before next winter. That adds about 2 BCF per day demand from now until the end of October. Many people do not recognize that refilling storage is not an option. IT MUST HAPPEN. Gas utility companies are required by law to maintain the pressure in gas distribution systems that bring gas to our homes. The only way for them to meet this requirement is to have enough gas in storage. It is the competitive bidding of utility companies against each other for gas supply that causes big price spikes.
Read the Art Berman article careful. He does a good job explaining why we have a good chance of high gas prices in Q4.
Let me be PERFECTLY CLEAR: The United States has HUGE natural gas reserves. It has more than enough to supply our gas demand for over a hundred years. BUT... reserves in the ground and current production capacity are two different things. Over the next nine months, Art and I see demand exceeding "production capacity".
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: U.S. Natural Gas and NGL Markets
Your education is very important to me, so here is something else to remember.
Natural gas is sold by the MMBTU not by the MCF.
Natural gas liquids demand and prices have increased, which means more companies will strip the liquids from their gas instead of selling it as "wet gas". Stripping the NGLs out lowers the BTU content of the gas. This means you have to burn more MCFs to get the same energy. This increases the demand for more MCFs.
There is going to be a big increase over the next six quarters in demand for NGLs. There has been a massive increase in petrochemical processing capacity along the Gulf Coast.
Pull up some of the Sweet 16 forecasts and look at the big increase in realized NGL prices the last two quarters.
Examples Q32016 to Q12017 price per barrel:
XEC: $14.14 to $20.40
EOG: $14.92 to $21.63
DVN: $9.90 to $15.46
Natural gas is sold by the MMBTU not by the MCF.
Natural gas liquids demand and prices have increased, which means more companies will strip the liquids from their gas instead of selling it as "wet gas". Stripping the NGLs out lowers the BTU content of the gas. This means you have to burn more MCFs to get the same energy. This increases the demand for more MCFs.
There is going to be a big increase over the next six quarters in demand for NGLs. There has been a massive increase in petrochemical processing capacity along the Gulf Coast.
Pull up some of the Sweet 16 forecasts and look at the big increase in realized NGL prices the last two quarters.
Examples Q32016 to Q12017 price per barrel:
XEC: $14.14 to $20.40
EOG: $14.92 to $21.63
DVN: $9.90 to $15.46
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group