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NATURAL GAS INVENTORY

Current: 1,734 Bcf
Actual Injection/(Withdrawal): 30 Bcf
Economist Average Estimate: 32 Bcf
Previous: 1,704 Bcf

Click here for the chart with five year averages.

NATURAL GAS IN THE MEDIA

*Pressure Mounts on US to Export Natural Gas – CNBC

As the U.S. produces more of its own energy, pressure is mounting on the federal government to move quickly to export its natural gas bounty—a move that has encountered stiff resistance from some energy market players. Natural gas, an abundant fuel source that is cheaper and cleaner than standard gasoline, is increasingly seen as a successor to diesel and regular gas, particularly as the world’s largest economy produces more of it. The recent surge in shale oil production has turned the U.S. from an importer of natural gas into a producer creating upwards of 2 million barrels per day, according to the Energy Information Administration. – Read More

*Foreign Investors Help Fuel U.S. Shale Boom – Bloomberg

China has about twice the estimated shale gas reserves as the U.S., but commercial production has been slow to ramp up on the mainland—because of a combination of challenging geology and an inflexible industry structure. Analysts predict it will be anywhere from three years to two decades before China’s commercial shale gas boom arrives. In the meantime, Chinese companies have invested $5.5 billion in U.S. tight oil and shale gas through joint-venture deals, according to data compiled by the U.S. Energy Information Administration. (The figures do not include other Chinese investments in Canada.) “They are not after developing the gas for profit, but after the idea of learning the technology,” says EIA energy economist Aloulou Fawzi. “They want to learn the technology and have a partner that may help them later to develop their own [domestic] shale resources.” – Read More

*Rise in U.S. Gas Production Fuels Unexpected Plunge in Emissions – WSJ

U.S. carbon-dioxide emissions have fallen dramatically in recent years, in large part because the country is making more electricity with natural gas instead of coal. Energy-related emissions of carbon dioxide, the greenhouse gas that is widely believed to contribute to global warming, have fallen 12% between 2005 and 2012 and are at their lowest level since 1994, according to a recent estimate by the Energy Information Administration, the statistical arm of the U.S. Energy Department.  While other factors, including a sluggish U.S. economy and increasing energy efficiency, have contributed to the decline in carbon emissions from factories, automobiles and power plants, many experts believe the switch from coal to natural gas for electricity generation has been the biggest factor. – Read More

*Trucking Industry Is Set to Expand Its Use of Natural Gas – NY Times

The natural gas boom has already upended the American power industry, displacing coal and bringing consumers cheaper electricity. Now the trucking industry, with its millions of 18-wheelers moving products like potato chips, underarm deodorant and copy paper around the country, is taking a leap forward in switching from petroleum to cleaner-burning natural gas. And if natural gas remains cheap, consumers may benefit again. This month, Cummins, a leading engine manufacturer, began shipping big, new engines that make long runs on natural gas possible. A skeletal network of refueling stations at dozens of truck stops stands ready. Major shippers like Procter & Gamble, mindful of both fuel costs and green credentials, are turning to companies with natural gas trucks in their fleets. – Read More

*‘Peak Fossil Fuels’ Is Closer Than You Think: BNEF – Bloomberg

Every time an iPhone is charged or an episode of “Mad Men” plays on a television, puffs of vaporized carbon join the atmosphere, products of power-plant combustion. And every year the world demands more. That era may be nearing an end, as the world approaches “peak fossil fuels,” a phrased used by Bloomberg New Energy Finance founder Michael Liebreich at the group’s annual conference. The concept of “peak oil” — that world oil production will plateau and decline — was popularized by a Shell Oil geologist named M. King Hubbert, who predicted in 1956 that U.S. oil production would max out in the early 1970s and gradually decline. Globally, the peak oil hypothesis has been consistently undermined by new extraction techniques: deep-water drilling, tar-sands extraction and most recently the fracking boom. The world now has enough of these fuels to last hundreds of years. – Read More

*Power Sector Readies for New Emissions Rules – WSJ

Faced with regulations that threaten to push coal out of the U.S. electricity mix, the power industry is weighing a lobbying strategy that treats new limits on greenhouse-gas emissions as a fait accompli. The approach, one of several laid out in an industry white paper viewed by The Wall Street Journal, would set a cooperative tone at the outset of the most consequential energy-policy debate of President Barack Obama’s second term: whether and how much to cut the power sector’s use of coal, a major contributor to the emissions linked to climate change. In a paper distributed days after the November 2012 election, staff at the Edison Electric Institute, a trade group for investor-owned utilities, suggested ways its members could try to shape a coming regulation of existing power plants that burn coal and natural gas. – Read More

*Gas industry gives Pa. stores taste for the South – Associated Press

The land of scrapple and chipped ham is starting to get a taste for jambalaya and boudin. Thanks to an influx of Southerners filling jobs in north-central Pennsylvania’s booming natural gas industry, a region not often placed on many culinary maps is finding itself flush with the foodways found below the Mason-Dixon line, arguably the source of some of the nation’s richest culinary traditions. Suddenly, convenience stores stock sweet tea, barbecue is a hot seller, and the almost Norman Rockwell-quaint Country Store in Pennsdale even makes its own boudin, a pork sausage popular in Louisiana. – Read More

*Precision Drilling expects U.S. rig demand to stabilize – Reuters

Precision Drilling Corp , Canada’s largest oil and gas drilling contractor, expects demand for its rigs to stabilize in the United States in the coming months after falling for several quarters and squeezing its profits. The number of rigs drilling for natural gas in the United States edged higher for the second straight week ended April 21, after declining for the last 18 months. U.S. rig count is down about 60 percent since peaking at 936 in 2011. The fall in gas-directed drilling in the United States, which began in late 2011, continued through the first quarter of 2013, Chief Executive Kevin Neveu said in a statement. The company’s drilling activity was down 23 percent during the quarter. In the United States, its average active rig count was 81, down 22. In Canada, the count was 123 rigs, down 11, from a year earlier. – Read More

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*Europe Struggles in Shale Gas Race – NY Times

IN eastern Poland, politicians are still hoping to join the shale gas energy revolution, but lately they have had to curb their enthusiasm. Large reserves of the gas discovered two years ago were initially projected to meet Poland’s energy needs for 300 years, but estimates have since been slashed by more than 80 percent. International energy giants like Exxon Mobil and Talisman Energy of Canada have scaled back their investments after disappointing early attempts at extraction. And competition from other fossil fuels, like abundant coal supplies, has made it unprofitable to tap many of the country’s new energy fields. –  Read More

 

*Chevron Announces Natural Gas Discovery Offshore Australia – Chevron Press Release

Chevron Corporation (NYSE: CVX) today announced further drilling success by its Australian subsidiary in the Exmouth Plateau area, located in the Carnarvon Basin. The Elfin-1 exploration discovery well encountered approximately 132 feet (40 meters) of net gas pay in the upper Mungaroo sands. It is Chevron’s 21st discovery offshore western Australia since mid-2009. Located in the WA-268-P permit area, the well is located approximately 106 miles (170 kilometers) northwest of Barrow Island and was drilled in 3,570 feet (1,088 meters) of water to a total depth of 11,909 feet (3,630 meters). “Elfin-1 is a demonstration of our continued industry-leading exploration success,” said George Kirkland, vice chairman, Chevron Corporation.  “These discoveries build a platform for future growth for Chevron.” – Read More

 

RESEARCH COMMENTARY

*Wells Fargo Securities (4.25.13)

UPS Accelerating Build Out of LNG Vehicles. UPS recently announced that the company plans to purchase 700 liquefied natural gas (LNG) vehicles and construct four refueling stations by the end of 2014. The company currently has more than 1,000 LNG powered vehicles on the road today, and the build out should help UPS take advantage of 30-40% lower fuel costs and 25% lower CO2 emissions when compared with imported diesel. Even with the additions, natural gas powered vehicles will only represent a fraction of UPS’s 100,000+ vehicle fleet; however, we believe the move indicative of a growing interest in tapping America’s abundant supply of natural gas. As we reported last month, BNSF, the second largest consumer of diesel in the country, plans to test natural gas powered locomotives, and UPS competitor FedEx is also testing LNG vehicles. While natural gas prices have rebounded sharply over the past year, we’d point out that based on energy content, the commodity still trades at a fraction of the cost of oil. We expect to see similar projects in the near future.

*Howard Weil (4.24.13)

Natural Gas Hybrids Update: 1Q13 Earnings Preview Full Report

Quick Take:  Feels like a relatively quiet earnings season for the HW Natural Gas Hybrid group this quarter.  With 2013 (and in some cases 2014) guidance on the table, the current drivers for updates to the numbers could simply relate to commodities forecast changes as natural gas has been on the move and NGLs remain weak.  We are forecasting 1Q numbers fairly in-line with Consensus, MDU being the one exception.  Thematically we do not see much new popping up – new well results are more of a 2Q event, midstream appears to be the same story – falling prices and occasional bottlenecks, and weather should give any of the utility subsidiaries a y/y bump.

Sector Performance:  In this energy market whirlwind, it has been tough to pinpoint the macro data points that are driving the stocks.  Directionally, we can always point out crude, which has dipped nearly 10% over the last 3+ weeks, taking the S&P E&P index and OSX down 6% and 2%, respectively.  But natural gas has been a different story.  Over the last 9+ weeks, the strip has risen 25% on colder weather, a correction (to a certain degree) in the inventory balance, and what appears to be a roll-over in supply.  However, the market has been headed to safety, with the UTY and AMZ indices now up 16.5% and 19.5%, respectively, vs. the S&P of +10.5% and E&P index now up 3.5%.

Quiet Update:  As we think about the themes that could play out this Q, it feels like we could have relatively uneventful updates ahead.  From a basin perspective, most of the new plays (Wolfcamp for EGN, Utica for EQT, liquids development for NFG) will be discussed on the calendar 2Q calls.  As such, we should get fairly normal operations updates.  Additionally, we scrubbed the models with our 1Q commodity update so we have minimal changes to our estimates.  We would be on the lookout for incremental hedging this Q as the move up in the strip has most E&Ps running to lock in additional cash flow.  Additionally, there has been a disconnect in the move up in 2013 and 2014 monthly contracts, which says to us there is selling pressure on the 2014 strip.

*Howard Weil (4.23.13)

Chevron $116.57 (SO): Natural Gas Discovery offshore Australia

Quick Take: This morning, Chevron announced a natural gas discovery in the Carnarvon Basin offshore Australia. TheElfin-1 well, located in the WA-268-P permit area, encountered 132ft. of net gas pay in the upper Mungaroo sands. This discovery marks Chevron’s 21st discovery offshore Australia since mid-’09 and serves to continue strengthening the Company’s position in the Asia Pacific LNG market. Chevron is the operator of permit WA-268-P with a 50% WI, with the remaining interest split between Shell Development Australia (25%) and Mobil Australia Resources (25%).

*UBS Investment Research (4.22.13)

Forecasting a 25-35 Bcf injection to be reported this week.  We expect the EIA to report a 25-35 Bcf injection, compared to 2012’s 47 Bcf injection and the 5-year average of a 44 Bcf injection. We estimate inventories increased to 1,734 Bcf, widening the deficit to 814 Bcf and 84 Bcf vs 2012 and the 5-year average, respectively.

Weather last week cooler than 2012 and the 5-year average.  Last week’s weather was 52% and 3% cooler than the comparable year ago week and the 5-year average, respectively. Since September, weather has been 15% cooler than last year but in line with the 5-year average.

Forecasting storage to enter next winter at 3.7 Tcf on November 1.  We estimate the weather-adjusted S/D balance was little changed WoW for the week ending 4/12/13. And we estimate the weather adjusted S/D balance has been ~3.3 Bcfd undersupplied vs. the 5-year average and ~1.2 Bcfd undersupplied vs. the year ago over the last month. We expect storage to enter next winter at 3.7 Tcf on November 1st, below the 5 year average of 3.76.

E&Ps are discounting $4.25/Mcf long-term, normalized natural gas prices.  This compares to the 2013 & long-dated (2017) futures curves of $4.11/MMBtu & $4.54/MMBtu. Our top E&P picks are: APC, MRO, NBL, and CLR.

*Raymond James Equity Research (last week 4.19.13)

Could this week mark the last week of withdrawals? Forecasts suggest more mild weather next week.

With weather from January through March substantially colder than last year, natural gas storage inventories are on track to bottom at ~1.65 Tcf, a substantial improvement vs. our initial 2.1 Tcf estimate. The “weather intensity” factor on the gas markets has definitely provided the gas prices some bullish tailwinds, but this should also play in the opposite direction as temperatures normalize. With initial forecasts calling for more mild weather next week, we would expect this to start showing up, potentially resulting in the first injection of the season. As we slip into the seasonally weaker shoulder season, we would expect the gas market to soften and could potentially result in a slight pullback in natural gas prices. That is, until we enter the summer cooling season, where we believe higher gas prices are necessary in order to loosen the market to the point of refilling storage. Ultimately, the market dynamics have clearly changed to a less bearish outlook, and depending upon summer weather, we would expect natural gas prices to hold in the ~$4.00/Mcf range over the next few months, with gas-to-coal switching likely keeping a near-term ceiling on gas prices.

*Wells Fargo Securities (last week 4.19.13)

How Much Room Does Natural Gas Rally Have to Run? Over the last several weeks, we’ve expressed skepticism over whether the natural gas rally can last much longer in light of number of factors, most importantly gas-to-coal switching and the end of the withdrawal season. Another data point worth considering is that the 12 month strip hasn’t seen the gains that front month gas has experienced over the last couple months. We think that long-term prices have underperformed front month gas in part because so many producers have been selling gas in order to lock in prices at what is now a 20 month high for natural gas. A recent WSJ article quoted a major energy trader saying that the number of producers selling gas contracts was the highest that he’d seen in two years. Probably safe to say that a number of these producers are skeptical the rally has legs- we’re in the same camp.

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.