17
Apr

Thursday Night Gas Storage Review

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Commodity Watch: Natural gas eventually traded off 4 cents to $10.34 after the EIA reported natural gas in storage increased by 27 Bcf, well above the consensus which called for an injection of 16 Bcf. Here are the numbers:

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Shameless Bull Watch: CNBC reported that although the number was above consensus it did not top some estimates calling for injections as high as 40 Bcf. The only way you could take the weather the States had last week and produce an estimate that high is to smoke something. CNBC, I beg you to take a more critical stance and do just some back of the envelop math on natural gas. If production is running 4 + Bcfgpd high to year ago levels (call it 3 for the few weeks Independence hub is down) and LNG is short by 2 Bcfgpd and Canada is flat (its not, it's slightly up but for the sake of argument) then you DO NOT HAVE A SUPPLY PROBLEM.  Sorry to shout and rant but please, do more analysis and less regurgitation of the traders standing behind you. Its embarrassing. 

1) Negative Price Catalyst #1 - Independence Hub Did Not Sink. It will likely return 1 Bcfgpd to the market in the next 1  to 3 weeks. This will likely put pressure on gas prices. 

2) Negative Price Catalyst #2 - Abnormally Cool Weather Has Been Masking Extra Supply. No Longer. Supply was up 4.1 Bcfgpd in the Lower 48 U.S. from January 2008 to January 2007.  Since then, the large cap E&P's (the source of gas growth in the U.S.) have displayed great comfort with their 1Q08 production growth targets which in aggregate suggest month after month of higher volumes, primarily as shale wells are added. Winter is finally losing its grip as today's larger number indicates. So this high growth in production is no longer masked by the cold and suddenly we get a bigger than expected injection. This will lead to a faster than normal rebuild in gas storage which should soften gas prices. I see no justification, either from a service inflation stance or a demand pull stance to justify $10+ gas when production is growing at historic rates. 

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