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NATURAL GAS INVENTORY (Week Ended 1/9/15)

roundup21Current: 2,853 Bcf

Actual Injection/(Withdrawal): (236) Bcf

Economist Average Estimate: (227) Bcf

Previous: 3,089 Bcf

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ANALYST COMMENTARY

KLR Group (1.15.15)

Largest Storage Draw Of The Season To Date; Above Consensus

Storage overview

The EIA reported a 236 Bcf storage draw, 4 Bcf above our 232 Bcf estimated draw and 7 Bcf above the 229 Bcf consensus draw.

The East region showed a 127 Bcf draw, the Producing region showed an 81 Bcf draw and the West region showed a 28 Bcf draw. Storage stands at 2,853 Bcf, ~13% above last year and ~4% below the five-year average. The data suggests the market is ~1.5 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 ~0.7 Bcfpd y/y, while industrial demand has been averaging up ~0.3 Bcfpd y/y over the past month.

Over the past month, Canadian net imports are down ~0.6 Bcfpd y/y, Mexican net exports are up ~0.4 Bcfpd y/y, and LNG send-out was down ~0.1 Bcfpd y/y.

In ’15, we anticipate gas-fired power generation should increase approximately 0.8 Bcfpd driven by a regulatory-diminution in coal-fired power generation.

Recent EIA U.S. supply data indicates October ’14 production averaged ~72.2 Bcfpd. We anticipate U.S. supply exits ’15 at ~73.8 Bcfpd. Rig activity is currently ~330 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.


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. The company or companies covered in this note did not review the note prior to publication. 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.


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.