NATURAL GAS INVENTORY (Week Ended 2/27/15)
Current: 1,710 Bcf
Actual Injection/(Withdrawal): (228) Bcf
Economist Average Estimate: (224) Bcf
Previous: 1,938 Bcf
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ANALYST COMMENTARY
KLR Group
Storage overview
The EIA reported a 228 Bcf storage draw, 3 Bcf above our 225 Bcf estimated draw and 4 Bcf above the 224 Bcf consensus draw.
The East region showed a 121 Bcf draw, the Producing region showed a 91 Bcf draw and the West region showed a 16 Bcf draw. Storage stands at 1,710 Bcf, ~43% above last year and ~8% below the five-year average. The data suggests the market is ~3 Bcfpd oversupplied on a weather-normalized quarterly moving average basis. Notably, gas was up ~$0.05 following the storage report.
Supply/demand trends
Over the past four weeks, gas-fired power demand has been trending up ~3.9 Bcfpd y/y, while industrial demand has been averaging up ~0.9 Bcfpd y/y over the past month.
Over the past month, Canadian net imports are up ~0.4 Bcfpd y/y, Mexican net exports are up ~0.6 Bcfpd y/y, and LNG send-out was up ~0.5 Bcfpd y/y.
In ’15, we anticipate gas-fired power generation should increase ~1.3 Bcfpd due to a regulatory driven diminution in coal-fired power generation.
Recent EIA U.S. supply data indicates December ’14 production averaged ~74.3 Bcfpd. We anticipate U.S. supply exits ’15 at ~74.9 Bcfpd. Rig activity is currently ~280 rigs and we expect an average of ~300 rigs in ’15.
Thesis (as of January 8, ’15)
In ’15, eastern U.S. gas production should increase ~3.7 Bcfpd, though associated gas production growth should moderate to ~2 Bcfpd driven by an ~30% expected decline in oil-directed drilling activity during the first half of ’15. Given the diminishing decline in legacy conventional production, overall growth in U.S. gas production this year should approximate last year though essentially stabilize sequentially the second half of this year.
With a largely stable gas rig count during ’14, U.S. onshore supply increased almost 4 Bcfpd y/y, which is comparable to our mid-year expectation. Stabilization in gas well/rig productivity relationship suggests a 300 (2H/15) to 350 (’17+) gas rig count should be sufficient to maintain market equilibrium. Long-term, a 350 gas rig count reconciles with a ~$4.25 NYMEX gas price and corresponds to gas-weighted E&P’s modestly outspending cash generation.
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