Monday, March 31, 2014

"Where Will Natural Gas Prices Go? Look to the Rigs"

From MoneyBeat:
Natural-gas traders are returning to a neglected data point to predict where prices will head next: the weekly rig count.

The count — a survey of the number of rigs drilling for gas released each Friday by oilfield services firm Baker Hughes Inc.BHI +2.63% — is key to estimating U.S. production. This winter, the rig count played second fiddle to weather reports, as freezing temperatures sent gas demand — and prices — sharply higher.
But now, with gas stockpiles at an 11-year low, the count is a key part of the analyst’s arsenal once again. Gas producers typically replenish inventories each spring, when mild temperatures keep demand down. If producers can’t refill storage by next winter, gas prices could rise. Gas for May delivery ended Friday at $4.485, up 4% this week though down from above $6 in February.

This Friday’s Baker Hughes count shows gas drillers operated 318 rigs, compared to 326 a week earlier and 389 a year ago.

That’s a concern for some traders who question whether drillers can replenish supplies by November, when heating demand begins to pick up. The country would need to see a 10 to 15 percent increase in rigs operating this summer to get storage levels to 3.9 trillion cubic feet of natural gas by November, about where it’s been entering previous winters, said Kevin Petak, vice president of fuel markets analysis for ICF International Inc. The U.S. Energy Information Administration reported 896 bcf in stockpile as of Thursday.

“If we don’t see an increase in rigs it’s only going to lead to more reasons for higher prices,” analyst Jim Ritterbusch said....MORE
See also:
March 7
Natural Gas: EIA Weekly Supply/Demand 
...A current backlog of natural gas wells, or wells that have been drilled but not yet completed so they can produce natural gas, will be a major contributing factor to future growth in production, particularly in the Marcellus Shale. A Barclays report on February 28 estimated that more than 1,300 wells in Pennsylvania remain backlogged. Backlogs are often the result of inadequate pipeline infrastructure in a region to support production. As new infrastructure becomes available, these wells can quickly begin producing....
Jan. 31
Natural Gas Producers Not Yet Taking the Bait of Higher Prices: Rig Count For Gas Drillers Hits Multi-decade Low
...You have to go back to 1995 to see that small a number of rigs directed at gas:
In October the EIA pointed out, in "Rethinking rig count as a predictor of natural gas production", that because of horizontal drilling and fracking the numbers aren't directly comparable but a trend is still a trend.
See also the intro to "Natural Gas Prices Strongly Higher on Arrival of Cold Spell" for some discussion of the interplay between prices and drilling.
Also the discussion in Jan. 22's "Natural Gas Prices Strongly Higher on Arrival of Cold Spell".