NATURAL GAS INVENTORY (Week Ended 2/6/15)
Current: 2,268 Bcf
Actual Injection/(Withdrawal): (160) Bcf
Economist Average Estimate: (168) Bcf
Previous: 2,428 Bcf
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ANALYST COMMENTARY
KLR Group
Supply/demand trends
Over the past four weeks, gas-fired power demand has been trending up ~1.1 Bcfpd y/y, while industrial demand has been averaging up ~0.6 Bcfpd y/y over the past month.
Over the past month, Canadian net imports are down ~0.1 Bcfpd y/y, Mexican net exports are up ~0.6 Bcfpd y/y, and LNG send-out was up ~0.2 Bcfpd y/y.
In ’15, we anticipate gas-fired power generation should increase ~1 Bcfpd due to a regulatory driven diminution in coal-fired power generation.
Recent EIA U.S. supply data indicates November ’14 production averaged ~72.9 Bcfpd. We anticipate U.S. supply exits ’15 at ~73.8 Bcfpd. Rig activity is currently ~315 rigs and we expect an average of ~305 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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