31
Jul

Thursday Night Gas Storage Review & Supply Update

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If you're looking for the CHK 2Q08 Pre Call Note click here.

In Tonight's Post:

  1. Gas Storage Review
  2. Gas Price Thoughts
  3. Gas Supply Update

Commodity Watch: Natural gas sank $0.13 to close at $9.12 after the EIA announced injections to gas storage of 65 Bcf. The Street was looking for an injection of 71 Bcf: I was looking for 75. Next week should see a much smaller injection as it has been a lot hotter this week. I'd also point out that the producing region (which is basically Texas and the surrounding states saw no injection this past week...it was hot down here.

Projected End of Injection Season Storage: Probably in the range of 3.2 to 3.4 Tcf which is now considered full-ish. This is pretty back of the envelope math but storage is only part of the price determining mechanism (and actually has played less of a roll in recent years). The Street is mostly looking for a 3.3 to 3.4 Tcf seaonal peak. Prices have more now to do with a perceived glut of supply next year. This is unlikely to come to pass as the Barnett should be about to peak at Johnson County is about saturated with new wells taking away the impetus this flush initial production provides to Texas production (see the Texas graph below). Also see below for more thoughts on gas prices at present.

 

The Cumulative Build In Storage Lags Last Year's and The Five Year Average. It's not like gas is just being banged into the ground at this point which is what you'd assume if you just looked at gas prices.

 

 

Natural Gas Price Thoughts: I'm a little torn in my opinion on natural gas prices at present.

  1. I think it is oversold and due a rally,
  2. I never thought it should have gotten as high as it got so that mutes the size of said coming rally.
  3. Traders seem to have finally taken notice of increasing volumes from the shale plays, something I was noting a while back when I bought puts in vain on the UNG,
  4. Traders are now missing out on the pace of deliverability increases…overestimating it and forecasting a glut next year,
  5. The pendulum always swings further than we think,
  6. Traders are focused on storms that could impede Gomex and Gulf Coast production and so far there is not much to talk about on the tropical front.
  7. Traders are not focused on Summer heat so much other than to say it won’t last which is not what my weather sources show,
  8. "Sell the rallies" seems to be in place here on crude (which I think will also bounce) and that impacts gas prices which trade largely in concert with oil,
  9. So while I think it will bounce, it may bounce from a much lower level, say $8,
  10. Hopefully, it holds $9 or the recent lows just below it. If not, we could vacuum down to $8 in the absence of further data points for a week.
  11. At that point, Aubrey’s hedges look pretty smart.

The Supply Picture. Here's the monthly slide show for U.S. gas production broken out into the larger pieces. Production was up about 5.4 Bcfgpd as of May (the most recently available month) and that is not a far cry from the YoY gains we have been seeing this year. 

 See Friday's post for a few random thoughts on natural gas demand.

 

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