NATURAL GAS INVENTORY (Week Ended 1/30/15)
Current: 2,428 Bcf
Actual Injection/(Withdrawal): (115) Bcf
Economist Average Estimate: (120) Bcf
Previous: 2,543 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 ~1.3 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 ~0.1 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 ~74 Bcfpd. Rig activity is currently ~320 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.
CIBC Capital Markets
Today’s report of a -115 Bcf draw was bearish relative to both street expectations of -120 Bcf and the five year average draw of -166 Bcf. The market dipped on the release, sending the prompt contract below the $2.60/mmbtu mark for the first time since Aug’12 (the market has since rebounded from the lows of the session). The once glaring deficit to the five year average has dwindled to a mere 29 Bcf below. Barring any substantial changes to the weather outlook, the deficit will likely be erased over the next several weeks.
Freeze offs are now in the rear view mirror and production is clocking in at a staggering 7 Bcf/d increase YoY. The caveat is that production in Jan’14 was hampered by freeze offs to the tune of 1.5 to 2 Bcf/d. The growth is still stunning nonetheless. Despite current levels of strong production, potential risks to production slowing on the horizon include lower prices impacting drilling and completion programs and lower levels of associated gas given potential slowing of oil production.
Today’s report marks the third consecutive bearish miss in as many weeks. Softening gas prices have certainly priced gas to compete with PRB coal, but perhaps analyst expectations for a larger than actual draw suggests that the market may be over estimating power burn, particularly the amount of coal to gas switching at current price levels.
Portions of the East Coast are expected to remain cold but the Western half is expected to see well above normal temperatures throughout the two week forecast period. Heating Degree Days for the aggregate US are expected to be largely in line with norms during that span.
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