Tuesday, April 24, 2012

CLSA on How (and when) Natural Gas Storage Will Reach Maximum Capacity

From Barron's Stocks to Watch Today, April 12, 2012:
CLSA: Buy Anadarko, Cimarex, Whiting, W&T Offshore Ahead Of Earnings
...Here are more details from his note:
There seems to be a growing urge among investors to get long gas-levered names. We would put Range Resources (RCC, BUY, $82) at the top of the list. However, we believe there is still downside risk to gas. 

Things are likely to get ugly in the third quarter as storage fills up, and not just for gas producers. If we assume storage builds at a rate equivalent to the five-year average over the next six months, inventories will hit the tested maximum of 4,150 Bcf by mid-September. 

If we assume in September demand is 58 Bcf/d, net imports are 4 Bcf/d, and domestic production is 64 Bcf/d, there will be 10 Bcf/d of production with nowhere to go. Shutting in the Haynesville or the Gulf of Mexico in its entirely would not be enough. 

At first, line pack is likely to force low pressure gas wells to shut in. As the system backs up further, the potential for pipelines and storage facilities to declare force majeure increases. This may force producers to substantially curtail gas production, which, given wells increasingly produce a mix of liquids and gas, could adversely impact oil and NGL production as well. It could take until late December for winter demand to have increased enough for producers to begin unwinding production curtailments....MORE
That Range symbol is a typo, RRC. Range is a class act with plenty of liquids rich acreage in S.W. Pennsylvania.