Wednesday Morning – Gas Macro Update



Market Sentiment Watch: Volatile start to the year for the energy group. In today's post please find the natural gas supply and demand slide shows (this post has been archived under "gassy" for ease of reference using the pull down menu at upper left), comments on REXX, and some other odds and ends. 

Ecodata Watch:

  • We get car sales over the course of the day (F = 17.8 mm, last read was 17.9 mm).  

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Stuff We Care About Today –  Gas Macro Slide Shows and Price Deck Change, REXX/AR
  4. Odds & Ends

Click the link directly below this to ...


Holdings Watch:

ZLT (Zman Long Term portfolio)

  • Yesterday’s Trades: None
  • ​The Blotter is updated.

Commodity Watch

Crude oil, after an early rally over $55, ended the session off $1.39 (2.6%) to close at $52.33 yesterday on a combination of profit taking exacerbated by a new high for the dollar and higher Iraqi and Libya production. Due to the holiday we get API after the close tonight and EIA oil inventories tomorrow after the natural gas inventory report is released. This morning crude is trading up slightly.

  • Street Price Deck Watch: 2017 Street estimate now at $54 (our $53 in yesterday's post was a week stale).  2018 estimate holding at $60.  We remain at $55 for 2017 (+$4 to -$6).
  • Kuwait Watch: Kuwait says it is committed to its new OPEC quota and has advised clients of lower production levels that will be in effect for the entirety of 1Q17.
  • Early Read on Oil Inventories:
    • Crude: Down 1.4 mm barrels, 
    • Gasoline: Up 1.5 mm barrels, 
    • Distillates: Up 0.7 mm barrels. 

Natural gas plummeted $0.397 (10.7%) to close at $3.33  yesterday on fear of a smaller withdrawal (milder weather and holiday impact on demand) with the early read for Thursday's report forming up at -61 Bcf.  This morning gas is trading up 3 cents.  The watches below are in part repeated and augmented versions of those in yesterday's post to accompany the slide shows noted below. 

Street Price Deck Watch: 2017 Street estimate now at $3.18 (up from prior $3.08).   2018 inched up to $3.13 from prior $3.09.  We expect the Street to continue to raise annual estimates through spring before reaching a plateau somewhere north of us (see next bullet) during summer. 

Z4 Price Deck Watch: We are increasing our 2017 natural gas price used for modeling from $3 to $3.25 with prices constrained by a return to modestly rising volumes and a lack of demand growth. 

  • We forecast 2017 production growth of ~ 1.4 Bcfgpd (+1.8%) relative to 2016 (growth temporarily stalled in 2H16) with volumes rising through the year off 4Q16 lows. We see PA, WV, and later TX as driving an overwhelming majority of the 2017 growth.  We note that EIA forecasts considerably higher production growth in 2017 than we do at +2.3 Bcfpgd but have also noted they have been reining their forecast in for a little while now.  
  • As a side note on production, and this is what can be price suppressing, we see going from down 1.2 Bcfgpd on a YoY basis in 1Q17 (possibly more) to up 3.4 Bcfgpd by 4Q17. That expectation of a return to growth is what dampens sentiment and is in our view responsible for the lackluster pricing of the 2018 strip (currently $3.07).   
  • Imports - looking for a mid line of 1.0 Bcfgpd of net imports in 2017 (vs ~ 2.0 Bcfgpd in 2016). At times the U.S. will be a net exporter (more likely in summer than at the bookends), 
  • We see demand slightly lower in 2017 on non record gas fired electrical generation.
  • At present we put trough storage in late spring 2017 of between 1,565 Bcf and 1,850 Bcf and a wider storage range of 3,450 Bcf to 4,000 Bcf for the fall 2017 peak.  
  • These storage levels compare to the 2016 trough and peak of 2,468 Bcf and 4,047 Bcf respectively and an average price for 2016 of $2.55. 

Natural Gas Production Watch: EIA data through October show another month of deteriorating U.S. supply with Lower 48 volumes of 74.9 Bcfgpd down from 75.8 in September and 78.1 Bcfgpd. We see declines as being arrested in 2017 but this is no small deal to have declines of this magnitude after so many years of rapid growth. Here's a couple of useful charts prior to publication of the slide shows in tomorrow's post.

Natural Gas Imports Watch: October net imports reached a modern history low at just under 1.0 Bcfgpd on a new high in exports to Mexico and low volumes coming down from Canada. Year to date (through October), volumes have been 2.05 Bcfgpd vs 2.7 Bcfgpd in the same period in 2015 and we know that some week's during December 2016 the U.S. was a net gas exporter. 

Natural Gas Demand Watch: October demand eased to 62.2 Bcfgpd marking the 3rd highest October on record vs 64.6 Bcfgpd in October 2015, the record holding October. This is still a whopping 10.6 Bcfgpd over the five year average for October. Industrial demand set a new record for the month but mild weather prompted lower demand from the Electrical, Residential, and Commercial sectors.  The Industrial angle to the demand story has been improving again in 2016 after scoring record after record in 2014 and then holding near the new high demand plateau in 2015.  Meanwhile, Electrical demand, while not a new record was still 5.9 Bcfgpd over the five year average. We do note that price likely limited gas fired generation in October as year over year generation was flat but gas fired generation was off 6.7%. 

Stuff We Care About Today

Natural Gas Macro - Production




Natural Gas Macro - Imports


Natural Gas Macro - Demand


Other Stuff

REXX Announces Sales of Warrior South To AR

  • 4,100 net Utica acres with 9 MM/d of current production,
  • $30 mm price tag with close expected during 1Q17,
  • No change expected for REXX borrowing base,
  • Relative non event for AR,
  • For REXX they have long planned to sell their Utica operations at Warrior South as part of the debt reduction effort (they continue limited development activity at their Warrior North Utica acreage pod in Carroll County, OH). Given limited additional development upside pricing appears adequate however this is a drop in the bucket as debt remains the key constraining factor here with EBITDA growth still set to be inadequate to move the name back into more normal levels this year. We have no plans to add to our tiny position in REXX at this time. 

ECA (unowned) - out this morning noting they expect to exceed previous guidance for 2017. 

Odds & Ends

Analyst Watch:

  • AR - Raymond James ups from Outperform to Strong Buy, target increased by $5 to $38.

64 Responses to “Wednesday Morning – Gas Macro Update”

  1. 1
    zman Says:

    Analyst Watch

    HAL – Credit Suisse ups target from $58 to $62

  2. 2
    zman Says:

    PDCE on the tape with a Delaware Basin add, reading. 

  3. 3
    ctb14 Says:


  4. 4
    zman Says:

    PDCE – nice bolt on 

    4,500 net acres with 300 BOEpd associated for $118 mm, or $24K/acre @ $30K per flowing which should be conservative view, roughly in line what they played to enter the area last August and comes with a DUC and one SWD well.

    Acreage contiguous with that 57,000 acre entry, becomes part of the central acreage block in west Reeves if you look at our last cheat sheet map (30 to 50% oil area), same 4 well per zone (WC A,B,C) assumption as last summer.  

    They can pay for this out of cash. 

  5. 5
    brodway Says:

    Nat Gas imports down 80% in 5 years….."A picture says a thousand words"….

  6. 6
    zman Says:

    re 5 – yep. Long time coming. On the export side, Mexico will continue to grow this year, LNG expecting modest growth too. Wildcard is Canada. 

  7. 7
    brodway Says:

    BofA/Merrill Lynch downgraded Newfield Exploration (NFX) to Neutral
    Past Rating: Buy

    Citi upgraded Newfield Exploration (NFX) to Buy
    Past Rating: Neutral

    Don't have price targets on either call 


  8. 8
    zman Says:

    re 7 – thanks. 

  9. 9
    brodway Says:

    SYRG quietly approaching 50dma at 8.52…

  10. 10
    zman Says:

    This didn't make the post as it was graphic enough but for those interested. 


  11. 11
    zman Says:

    It only took me raising my natural gas price deck to $3.25 to get it to fall $0.50 in two days πŸ˜‰


  12. 12
    brodway Says:

    Was interested to get more info. on SWNC…..sometime last year someone noted that this convertible preferred share can be converted into the common by a certain date….anyone remember the conversion price and more specifics about the time frame involved? 

  13. 13
    brodway Says:

    re: 11

    That may be so, but lets not forget that it rose from 2.60 to 3.80 in a very short time period and individual equity names haven't been the beneficiaris of the rise ……but sure took the fall yesterday…..

  14. 14
    zman Says:

    re 12 – January 15, 2018

    can convert before, if not auto converts at that point into between ~ 37 and ~43.48 common. 

  15. 15
    brodway Says:

    re: 14

    Great thanks Zman…..was thinking if it would make sense to get the benefit of the dividend at low premium of conversion…..but those are significantly higher conversion prices given where the common is now.

  16. 16
    zman Says:

    re 13 – I was kidding.  My point is a lot of people want the stocks to really move up with the commodity but the commodity is likely near term somewhat capped.  The stocks should move better once the risk of a fall is taken out of it. No one wanted to buy stocks know the price was near term weather inflated. It would seem the market has more fear in it of a return to rapid growth than we do. As noted the STEO has been looking and continues to look for a big jump in 2017 produced gas. And they have been pulling that back which makes a lot of sense. To get to their numbers we now … I can't get to their numbers … it's just too rapid an improvement in volumes 

  17. 17
    zman Says:

    SNDE – interesting action. 

  18. 18
    brodway Says:

    RICE quickly waving good bye to the sub 20 handle….good thing i took a screen shot yesterday…..going to stash it and take another look at it in 6 months…. 

  19. 19
    zman Says:

    Street now at -93 Bcf for tomorrow's storage pull. 

  20. 20
    brodway Says:

    re: 19 

    where would that put the 5 year average number at?

  21. 21
    zman Says:

    re 20 – it's a modest negative vs the five year, would go from -2.3% to it last report to -1.95% to it with this one. 

  22. 22
    brodway Says:

    The stocks should move better once the risk of a fall is taken out of it. 


    After being crushed in the energy crisis of 2014/2015, it's going to take time for investors to get comfortable with the price of commodity and investing in the sector again….After a warm winter last year and the aforementioned energy crisis, there is certainly some hesitation  of being invested in the space…..That thinking should change as warm winters are an anomaly and not the standard… crises also don't last forever and nat gas is a cheap commodity that is replacing other energy sources such as coal….however that is a transition that is going to take time and less volatility (especially to the downside). I think that is 6 to 12 months away from being accomplished…..Not a very long period of time if one considers the possible substantial returns on nat gas equities. In addition there are other positive factors that may not be being priced in right now…. some of what you point out on a regular basis….the export situation, the low cost producer, the new more accommadative administration  and a host of reasons that are reflected in the morning macro post….  I personally like the risk/reward being created in the space….

  23. 23
    RB Says:

    WTI…we had an ugly outside down day yesterday to start the year.  The decline stopped at logical support and trendline support and pivot low support is not far away at $50 or thereabouts.  (this is an end of day chart…all data is as of yesterday's close)



  24. 24
    zman Says:

    re 23 – thanks – it is somewhat interesting that the oily names basically ignored the reversal by day's end. Street continues to slowly grind targets higher on increased price and activity assumptions. Expecting non Permians to continue to get more notice as they did in 2H16 in the new year. 

  25. 25
    brodway Says:

    Last year i posted about David Kotok of Cumberland Advisors pounding the table on nat gas…..he's certainly has less specifics to offer than Zman, but his perspective is quite interesting and offers yet another view as to why nat gas may be a bargain (his words not mine)…..This may be dated, but still offers info that is still relevant today


  26. 26
    brodway Says:

    is BCEI halted?

  27. 27
    zman Says:

    re 26 – I don't show a halt but am told it is. I'm surprised it's trading nearly as high as it has been. 

  28. 28
    zman Says:

    WPX – anyone see news?

  29. 29
    zman Says:

    2nd time I've been pinged in 24 hours re CRK (unowned) private call regarding Haynesville developments. 

  30. 30
    zman Says:

    Analyst Watch

    BofA – again, not a lot of respect for them by me over the years

    Downgrades COG from Buy and SWN from Neutral to Underperform. 

  31. 31
    j Says:

    Re 26-27:  BCEI filed Ch. 11.  Someone see's value in their bonds. Their 2021's and 2023's have traded from low $60's to high $80's in just the last few weeks.  It would be interesting to see what BCEI did different in their filing versus UPL.  UPL rallied $7-8 from its BK low, while still in BK.

  32. 32
    zman Says:

    re 31 – right, it was pre pack late last year. Dilution is massive. 

  33. 33
    zman Says:

    XOG (unowned) increasingly interesting as it ebbs. Estimates have now done about face and likely to be too low.  2018 estimates appear wildly off base. Comments in tomorrow's post. 

  34. 34
    tomdavis12 Says:

    Z:  WPX raised at Citi $15 to $17.

  35. 35
    zman Says:

    re 33 – actually Friday, adding a 2018 model, don't think I'll be done. 

    re 34 – thanks much. 

  36. 36
    zman Says:

    Offtopicthirty, grabbing lunch. 

  37. 37
    Zorgnak Says:

    CL  Easy test of support….looking for more consolidation/acceptance around 53 and above 51.77


    XOP Consolidation around acceptance at 41.94….expecting further upside tests to 42.57 CLVN


    XOG Very quick price rejection as too low on dip below defined support…. re-testing support ATM @ 19.55


    Short term



  38. 38
    james T Says:


     EIA-weighted model projects a mere 82 BCF pull this week, with 5 BCF of salt-skew on the injection side rather than

    ……last weeks 37 BCF skew on the draw-side.

  39. 39
    james T Says:

    Robry also says last week baseline number was -170 with about 30 bcf of salt overcount in the total -237 draw.

  40. 40
    zman Says:

    re 37 – thanks much

    re 38/39 – thanks, so 82 Bcf this week eh?

  41. 41
    james T Says:

    re41 yup 82 

  42. 42
    zman Says:

    re 41 – K – thanks. 

    Oil at $53.20 with 30 minutes in the Nymex day. Bored looking trading ahead of inventories tomorrow. 

    NG down a further 6 cents (~ 2%) to $3.27. 

  43. 43
    RB Says:

    I found this on Twitter re: the VIX which I thought I'd share.  Because of this stat I put on a little volatility long using UVXY….



  44. 44
    zman Says:

    Quick Fed Minutes story (why they see 3 hikes)


  45. 45
    zman Says:

    re 43 – a little calm before the volatility kicks 

  46. 46
    zman Says:

    RB – FYI, we added a bit more gassy exposure at the end of the year while you were out (added to ECR and AR, added COG back). 

  47. 47
    brodway Says:

    SWN gradually walking away from $9 handle….markets starting to price in a bounce in the commodity….cat and mouse game

  48. 48
    brodway Says:

    re: 37

    Zorg….assuming CL is Continental and not Colgate Palmolive πŸ™‚

    Good to see you back…..and Happy New Year!!!!!!

  49. 49
    zman Says:

     Hear ya, quietly higher.  Working on a model. 

  50. 50
    reefguy Says:

    CRK call Notes:

        two rigs in 2017. 100% Haynesville capital.

       Wells drilled in 2016 indicating 2.5 to 3.0 BCF/1000'.

       New Gen completions are 3800#/lateral foot.

       Claiming at $3.50 gas that they generate better than 100% IRR

  51. 51
    zman Says:

    re 50 – those are monster fracs, did they say a CWC or a $/ft rate?

  52. 52
    zman Says:

    Also what Parish (this is nw LA right, not e TX?)

  53. 53
    nrgyman Says:

    2016 auto sales 17.55 million.  Dec rate 18.4 million–likely the most ever.

  54. 54
    zman Says:

    re 53 – thanks. Wonder what sliver are electric 😎

  55. 55
    zman Says:

    Beerthirty, back in a bit. 

  56. 56
    reefguy Says:

    Desoto parish.  About $1050/lateral foot.

  57. 57
    nrgyman Says:

    Two recent moves by majors in the midstream space look to take advantage of growth in NGL volumes/prices.  MPC and the SE/PSX JV have each decided to drop down midstream assets to their MLPs and take a greater ownership share in them.  Both MLPs (MPLX and DPM) are levered to NGL prices/volumes.  Here are RBN's predictions for 2017:


    Note:  #1 is that natgas, particularly wet natgas, will be a more attractive market than crude.  #2 is Ethane production will ramp.  #3 is the frac spread between NGLs and natgas will grow from $2.30 to $5-6 mm/btu as NGL prices outpace natgas prices, boosting the margins of natgas processors.  


  58. 58
    Mark Wetzler Says:

    #15 brodway There is a site Quantum Online that has terms on many converts and preferreds. I believe they have the exact number of shrs that SWNC must convert into when the time comes. When I last looked at the mandatory cvt. I realized that the premium I was paying vs. the current conversion(at the time) meant that I was mostly getting my own money back so I stuck with the common and wrote calls to generate some income.

  59. 59
    zman Says:

    re 57, 58 thanks

    API Watch

    CRUDE -7.4mb GASOLINE +4.25mb DISTILLATES +5.24mb CUSHING +0.482mb

  60. 60
    zman Says:

    AR on the tape with 2017 program – deets in the morning post. 

  61. 61
    Zorgnak Says:

    #48   Thanks….In and out in full on dilettante mode…

  62. 62
    brodway Says:

    re: 58


    Thanks for the info…will peruse Quantum Online for future preferred and convert data

  63. 63
    brodway Says:


    the Fed has really let markets dictate the direction of rates for a long while……what's unique about the December rate hike is that the tantrum crew backed off this time with a more tame response. the 1/4 point increase was better received than at any other time….in other words markets have priced in the hike as a foregone conclusion….i don't believe that a 1/2 – 3/4 point hike is a done deal……i am of the opinion that the Fed will continue to feed off the markets to signal whether any future hike are receptive…..should indexes continue to rise and creation of wealth leads to more spending and economic activity (employment rate is already at full employment…..if you buy those figures), then its certainly a fair prediction….but should dollar strength inhibit GDP growth this year and we revert back to sub 2% growth, those hikes are off the table.

  64. 64
    Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Wrap – Week Ended 01/06/17 Says:

    […] We updated our natural gas macro this week and edged up our price deck. Please see the Wednesday post here.  […]

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