High on Gas: Week Sees Tighter Nat-Gas Supply Report, Goldman’s View to $4.50
The price of natural gas is surging on Friday. Among the week’s highlights: A steep fall in the domestic natural gas stockpile and a bullish report by Goldman Sachs (GS).Incorrect..
On Thursday, the U.S. Energy Information Administration said underground gas storage fell by more than expected, pushing the stockpile to 2.1% below the five-year average for this time of year, according to Dow Jones Newswires’ Jerry A. DiColo. From DiColo:
“The reduced amount of gas in storage still has the market’s attention,” said Gene McGillian, a broker and analyst at Tradition Energy. “The supply outlook is much tighter than people anticipated.”...
All you have to do is look at heating degree days vs. last year for the mid-Atlantic to New England to see that it has been demand that has been driving the storage withdrawals.
Baby it's been cold outside.
We made mention of the December production decline in last month's "Musings: Natural Gas Output Falls In December; Start Of A Trend?" but Bentek answered the question:
...They are projecting that overall gas output will grow by 2 Bcf/d in 2013, as nine key shale basins will grow by 4.9 Bcf/d, which will be offset by other production falling by 2.9 Bcf/d. In 2014, the firm sees production increasing by 3.4 Bcf/d.Back to Barron's:
An interesting point in the historical data is that in 2011 offshore gas output fell by 1.2 Bcf/d and then by another 0.9 Bcf/d in 2012. Bentek sees offshore production declining by only about 0.3 Bcf/d in 2013 and reaching steady output in 2014. If we were to exclude the impact of the decline in offshore production in 2011-12, the average annual output increase was about 4.3 Bcf/d, or nearly 0.8 Bcf/d more coming from onshore basins. By the end of 2014, Bentek foresees gas output above 70 Bcf/d, up from current production of slightly be low 65 Bcf/d...
...Then there was the late-week Goldman report, which calls for gas to reach $4.50 to keep storage levels up to snuff:
We believe Henry Hub natural gas prices will need to rise to $4.50/MMBtu in 2H 2013 to keep gas storage levels near balance and stimulate greater drilling activity in preparation for the beginnings of the demand response to the shale gas transformation in 2014. We raise our 2013 Henry Hub natural gas prices to $4.15/MMBtu from $3.75/MMBtu as we believe a further 200 Bcf demand shift to coal from gas is needed to keep gas storage in balance. We continue to expect $4.25/MMBtu in 2014, the midpoint of a $4.00-$4.50/MMBtu weather-normal range for natural gas we expect through 2018. While gas sentiment has improved, we believe the Street is still not appreciating a continuation of favorable storage trends vs. the 5-year average in 2Q 2013. We continue to have a multi-sector approach for natural gas exposure – our favorites include SWN/COG among E&Ps, CLD for coal, HAL/BAS/NBR for oil services and NRG for IPPs....MORE
