Current /NG:NMX Stock Info

NATURAL GAS INVENTORY (Week Ended 8/31/12)

Current: 3,402 Bcf
Actual Injection/(Withdrawal): 28 Bcf
Economist Average Estimate: 33 Bcf
Previous: 3,374 Bcf

Click here for the chart with five year averages.


*SandRidge Energy (SD) put forth more data on its Mississippian play in Oklahoma and Kansas.  On page 11 the company provides an overview of its activities on its 1/75MM acres.  For the period of Q1’11 to Q2’12, SD increased its production to 25,240 BOE/D, a 610% increase from the 3,553 BOE/D produced in Q3’10.  Click here for the corporate presentation.

Oil & Gas 360® interviewed Tom Ward, SandRidge Chairman during EnerCom’s The Oil & Gas Conference® 17.  Click here for that interview.



*Pioneer Natural to sell Barnett Shale assets – Reuters

Oil and gas producer Pioneer Natural Resources Co plans to sell its acreage in the Barnett shale field in Texas to raise capital for its more lucrative assets and cut down debt. Pioneer Natural said the sale will allow the company to spend more on assets in the Spraberry field, the Wolfcamp shale and the Eagle Ford shale, all located in Texas. The company has about 155,000 gross acres in the Barnett shale, which accounted for 4 percent of the company’s production in the first half of the year. Production from the field is about 7,000 barrels oil equivalent per day, of which 55 percent is oil and natural gas liquids. – Read More

*EIA: Record Natural Gas Consumption – Electric Co-op Today

In its August Natural Gas Monthly, the agency said consumption for June reached 1.85 trillion cubic feet. That’s the highest June total on record and a 12.2 percent jump from June 2011. For the first six months of the year, U.S . demand for natural gas stood at 13 tcf, compared with 12.7 tcf for the same period in 2010, EIA said. The biggest jumps in consumption have come in the electric power sector, where natural gas generation had been strong but relatively steady. Electric generation powered by natural gas was 3.2 tcf for the first six months of 2010, rising slightly to 3.3 tcf for the first six months of 2011. – Read More

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*U.S. Shale Glut Means Gas Shortage For Mexican Industry – Bloomberg

Mexico has begun cutting natural gas supplies to some of its largest customers by as much as 45 percent of their orders to cope with ballooning demand from households to steelmakers such as Ternium SA (TX) and ArcelorMittal. Monopoly supplier Petroleos Mexicanos, known as Pemex, started reductions on a case-by-case basis as the government studies forcing the measure on all companies. Pemex has increased imports from the U.S. to records this year as its state-owned pipelines run at about 95 percent of capacity. – Read More

*How can I invest in natural gas now that prices have tanked? – USA Today

Natural gas was supposed to be the “new oil” during the craze over the commodity in 2008. But instead, the price of natural gas has tanked. Investors who piled into natural gas in 2008 have been crushed. Shares of the United States Natural Gas exchange traded fund (UNG) topped out at $508 in July 2008. Natural gas became a very fashionable investment to own because it seemed demand for energy was going to outstrip supply. But it didn’t pan out that way. Shares of the United States Natural Gas ETF have collapsed 96% since the 2008 high. That’s a dot-com style drubbing, which was probably a shock considering that investors often buy commodities thinking that they are a hard asset — and safer than stocks. – Read More

*ND regulators approve wind farm, natural gas plant – Bloomberg

State regulators on Wednesday approved construction of a wind energy project and a natural gas processing plant in western North Dakota that will represent about $360 million worth of new construction. A subsidiary of Oneok Inc., an energy company based in Tulsa, Okla., intends to build a factory capable of processing about 100 million cubic feet of natural gas daily, the state Public Service Commission said. Oneok already operates two natural gas processing factories in northwestern North Dakota, and has two more already under construction. The fifth, called Garden Creek II, will be located about six miles northeast of Watford City, in McKenzie County. – Read More

*Connecticut hopes to catch natural gas boom – Connecticut Post

Natural gas – cheap, abundant, less polluting, and domestically produced – may be transforming the nation’s energy market. But Connecticut is a wallflower at this new energy dance. The state lags far behind its neighboring states and the national average when it comes to having access to natural gas, and the cost of building out a pipeline network is daunting. “We don’t have the infrastructure,” said Lee Hoffman, a Hartford attorney who has worked on environmental issues in the state. As a result, Connecticut residents are the most reliant in the nation on home heating oil, an expensive energy source. – Read More

*Spain’s energy firm Repsol makes natural gas find in Peru’s Amazon region – Washington Post

Spanish energy company Repsol said Thursday that it has made a significant natural gas find in the Amazon region of the South American country of Peru. Repsol SA said it holds a 53.8 percent stake in the find, with Brazil’s Petroleo Brasileiro SA holding the remainder. It estimated the find could contain up to 2 trillion cubic feet of gas resources. The company said a statement it struck gas at rates of 50 million cubic feet per day at depths of more than 2,700 meters (8,850 feet). The find is located between Peru’s Otishi National Park and the Megantoni Sanctuary, an area reserved for indigenous peoples who have voluntarily sought isolation from civilization. – Read More

*Tepco Head Fears End of Nuclear in Japan – Wall Street Journal

The new head of Japan’s biggest electric company aired concerns about the possibility that Japan could phase out nuclear power, saying such a move would necessitate a “complete” revamping of its investment and fuel-procurement plans and could be detrimental to the country’s energy security as well. “Based on Japan’s past experience (of oil shortages in the 1970s), it’d be wiser to have diversity” in Japan’s energy mix, both in the kinds of fuels used and the places they are bought from, Naomi Hirose, president of Tokyo Electric Power Co., 9501.TO 0.00% said in an interview Wednesday. After the oil shocks, “we had to sharply hike rates twice, and Japanese society fell into chaos,” he said. – Read More

*Iran reaches out to Russian on oil, gas – UPI

The Iranian government is interested in working with Russian companies in the oil and natural gas sector, the Iranian oil minister said from Moscow. Iranian Oil Minister Rostam Qasemi said Iran was producing around 4 million barrels of oil per day. Half of that, he said, was for exports. He told Russia’s state-run news agency RIA Novosti that he was looking forward to positive results from his approach with his Russian counterparts. – Read More


*Barclays Conference Feedback (9.6.12)

Chesapeake Energy (CHK)

Gas production is expected to decline 7% in 2013 year-over-year.  CHK disagrees with the notion that associated gas from liquids-rich plays can offset the gas production decline.  It believes that gas supply is starting to fall based on their own asset base.

*Baird Equity Research (9.6.12)

August 31 natural gas storage report bullish for near-term gas prices as injection materially below consensus (-15%) and tightness up significantly. The EIA reported storage below Street estimates as warmer weather returned (+35% CDD vs. normal, +1% Y/Y) bringing with it increased tightness at -4.9 Bcf/d (hurricane impact estimated at -1.9 Bcf/d for the week). The 28 Bcf injection was at the low end of the 26-50 Bcf range, which reduced the storage surplus to +11% vs. the five-year average.

Injection beat the Street. The EIA reported 3,402 Bcf of working natural gas in storage as of Friday, August 31, representing a 28 Bcf injection from the prior week. The report was bullish versus the consensus estimate of a 33 Bcf injection (range of 26-50 Bcf) our 34 Bcf estimate. Storage beat likely viewed positively by the Street given volatility in recent reports (two previous reports were bearish following a streak of bullish draw downs).

Market tightness up materially on warmth/hurricane. Market tightness (relative under-supply) was -4.9 Bcf/d bouncing back from last week’s looseness reading (over-supply) of +0.6 Bcf/d as warmer weather and hurricane-induced shut-ins helped balance the market. We estimate the Hurricane impact to be -1.9 Bcf/d for the week ended 8/31 with Gulf shut-ins starting on 8/25; ~1.1 Bcf/d of Gulf gas production remains off line currently vs. the peak of 3.3 Bcf/d on 8/30.

Fall storage outlook remains key. Current working gas storage remains materially above one-year and five-year averages at 377 Bcf and 329 Bcf higher, respectively. Storage surplus continued its downward trend this week following a modest increase last week (the first in 18 weeks) that spooked investors. Ultimately, storage is down materially from March peaks of 893 Bcf (+57%) and 928 Bcf (60%), respectively.

Gas futures trading flattish, as market digests report. At the time of writing, front month (October) gas futures trading up ~1% at ~$2.82/MMbtu, down a bit from the reactionary spike to ~$2.85/MMBtu; futures remain solidly within its recent trading range of $2.70-$3.00/MMbtu.

Tightness/supply still the focus for gas price. Cautiously optimistic on rate of reduction in storage surplus and reduced required minimum tightness to avoid full storage. -1.25 Bcf/d tight seems achievable in our view as current gas prices likely induce more coal-to-gas switching in the early fall shoulder season when fuel optionality is more prevalent, similar to trends seen in spring/early summer.

*CLSA (9.6.12)

It appears the decline in the natural gas rig count has begun to have an impact on natural gas production. Net of storm-related shut-ins, the June EIA-914 data shows production was flat sequentially and up 4.5% year-over-year. We do expect a bit of a jump in July as shut-ins related to sub $2 gas prices and Tropical Storm Debby begin to ease back into the market. Importantly though, production growth in key states has flat-lined. Despite the rig count being up substantially in both the Eagle Ford and Permian Basin June 2011 to June 2012, Texas production was essentially flat. Virtually all of the growth has been from the Marcellus. As we expect the only real demand driver to be the return of normalized winter temperatures, our positive outlook for gas next year (we’re at $4.00/MMBtu in 2013) and beyond is in part contingent upon a supply response to the drilling slowdown. The data so far is tilting in our favor. Obviously, a second consecutive warm winter is the primary risk to our thesis. Our top picks to play a rally in gas are Cimarex Energy and Bill Barrett Corp.

Offshore swoon

Offshore production is a shell of its former self. From June 2011 until June 2012, production in the Gulf of Mexico is down 21%, which becomes an 18% decline netting out the impact of 130 MMcf/d of production shut-in due to Tropical Storm Debby. The Gulf has declined from 19% of total production just prior to Hurricanes Katrina and Rita in 2005 to 6% now. Although McMoRan continues to tinker with getting the ultradeep horizons of the Gulf Shelf into production, we believe the region will continue to decline.

Production vs the rig count

The industry’s dramatic shift in focus to unconventional plays over the latter part of the last decade upset the relationship between the natural gas rig count and natural gas production. Nevertheless, we believe that with a few tweaks the rig can still be indicative of general production trends. Importantly we think the backlog of drilled wells that are not yet online results in a 12-15 month lag between a shift in drilling activity and a significant production response. When adjusted for both the oil and horizontal rig count (Figure 10), the rig count shows drilling activity is back to where it was in mid-2009. Then, onshore production was essentially flat month-to-month, actually declining almost 1 Bcf/d from January to December. While the rig count probably has not fallen enough yet to cause sequential declines, we do think it is approaching a level where month-to-month growth will slow to a trickle. An actual sequential production decline would, in our view, result in a substantial and sustained (for several weeks at least until power generation reverted back to coal) positive shock to natural gas prices.

20 estimates range from 26 Bcf to 50 Bcf

The median consensus estimate is a 33 Bcf injection. The five-year average change for this time of year is a 60 Bcf injection. Last year, inventories increased 62 Bcf. Last week, inventories increased 66 Bcf versus the consensus estimate of a 64 Bcf injection. There were 70 CDDs (cooling degree days) during the week ending 31 August compared to the five-year average of 70 CDDs, last year’s 72 CDDs and the prior week’s 56 CDDs.

*UBS Investment Research (9.6.12)

Injection below consensus expectations and our estimate. Storage rose 28 Bcf, below consensus of 33 Bcf and the UBSe range of 30-40 Bcf. The injection was below both 2011’s 64 Bcf injection and the 5-year average of a 62 Bcf injection. Inventories are now 3,402 Bcf, narrowing the surplus vs. both 2011 and the 5-year average to 377 Bcf and 341 Bcf, respectively.

Weather last week cooler vs. 2011 but warmer than the 5-year average. Last week’s weather was 4% cooler than the comparable year-ago week but 13% warmer than the 5-year average. Since May, weather has been 6% cooler than 2011 but 6% warmer than the 5-year average. Roughly 20% of CDDs remain ahead of us.

Forecast injection of 40-50 Bcf next week. We forecast a 40-50 Bcf injection next week, below both 2011’s 87 Bcf injection and the 5-year average of a 67 Bcf injection. Over the last month, the weather adjusted S/D balance has been ~3.8 Bcfd undersupplied vs. the 5-year average & ~4.9 Bcfd undersupplied vs. 2011. We expect storage to build to a record peak of 3.90 Tcf on 10/31 (0.22 Tcf above the 5 yr avg and near capacity).

E&Ps discounting long term prices of $4.45/Mcf. This compares to the 2012 & long-dated (2016) futures curves of $2.68/MMBtu and $4.29/MMBtu. Our top E&P picks are: APC, NBL, EOG, OXY, and MRO.


This week’s injection implies that the weather adjusted S/D balance was little changed WoW after factoring 15 Bcf of Gulf of Mexico shut-ins related to hurricane Isaac. We estimate the weather adjusted S/D has been ~3.8 Bcfd undersupplied vs. the 5-year average and ~4.9 Bcfd undersupplied vs. the year-ago over the last four weeks due to significant price induced fuel switching from coal to natural gas boosting demand. The undersupply vs. the 5-year average is looser than the 2Q average of 4.6 Bcfd but tighter than the 1Q average of 3.4 Bcfd of undersupply relative to the 5-year average. We believe that gas prices need to remain weak to reduce drilling activity and the rate of domestic production growth (+4.3% YoY in June), as well as incentivize continued coal-to-gas fuel switching to prevent storage from exceeding capacity this fall. We forecast a 40-50 Bcf injection for next week. We believe material tightening in the S/D balance is necessary to enable the market to balance without the benefit of coal to gas fuel switching. Additional tightening (to the tune of >4 Bcfd) is required to displace fuel switching demand from coal, tighten the weather-adjusted oversupply, and enable natural gas prices to exceed $4.00/MMBtu.

*Baird Equity Research (9.4.12)

Natural Gas Monthly out last Friday. The EIA published its Natural Gas Monthly last Friday afternoon, in which it released production and consumption figures from June 2012. One key indicator we have been watching all year is electric power generation demand for natural gas given price-induced switching. Consistent with our early look from the Electric Power Monthly, power gen demand remained strong at +25.4% Y/Y (vs. our regression that projected +25.5%). While June data represents a notable downtick from prior months (prior three month/YTD averages of +40%/+34%), the Y/Y trend is seasonally expected with the warm June weather (+18% CDD vs. normal) requiring additional coal generation to meet elevated demand vs. prior months where gas generation displaced more coal. On the demand side, modest uptick in industrial demand that is trending ahead of recent averages, while residential and commercial demand also improved and are now trending in line with seasonal averages. Still incorporating new data into our comprehensive supply/demand model but will pass along updated outlook shortly.

June EIA 914 onshore production increased +0.2% M/M; Lower 48 down -0.2% M/M (Peng). This is largely in-line with our adjusted forecast of +0.2% onshore production growth and -0.1% Lower 48 growth. Louisiana/Haynesville drove the increase as new and previously shut-in wells came back on-line, with Other/Marcellus also contributing to the increase. We forecast July production to increase +0.9-1.0% M/M. Despite the decrease in gas rig count, we do not anticipate US onshore production to turn over in the near term, which given waning tightness may be seen as bearish for short-term gas prices. We continue to view 2012 as a pivotal year for gas and are cautiously optimistic into the fall with ~1.25 Bcf/d tightness needed through October to avoid max capacity (sub-4 Tcf).

*UBS Investment Research (8.31.12)

Forecasting a 30-40 Bcf injection to be reported this week. We expect the EIA to report a 30-40 Bcf injection, below both 2011’s 64 Bcf injection and the 5-year average of a 62 Bcf injection. We estimate inventories increased to 3,409 Bcf, narrowing the surplus vs. 2011 and the 5-year average to 384 and 348 Bcf, respectively.

Weather last week cooler vs. 2011 but warmer than the 5-year average. Last week’s weather was 4% cooler than the comparable year-ago week but 13% warmer than the 5-year average. Since May, weather has been 6% cooler than 2011 but 6% warmer than the 5-year average. Roughly 20% of CDDs remain ahead of us.

Forecasting storage to peak this Fall at 3.9 Tcf. We estimate the weather-adjusted S/D balance was little changed WoW for the week ending 8/24. We estimate the weather-adjusted S/D balance has been ~3.6 Bcfd undersupplied vs. the 5-year average and ~4.8 Bcfd undersupplied vs. the year ago over the last month due to significantly larger price induced fuel switching from coal to natural gas boosting demand. We expect storage to build to a record peak of 3.90 Tcf on October 31 (~0.22 Tcf above the 5-year average).

E&Ps are discounting $4.45/Mcf long-term, normalized natural gas prices. This compares to the 2012 and long-dated (2016) futures curves of $2.69/MMBtu and $4.29/MMBtu. Our top E&P picks are: APC, NBL, EOG, OXY and MRO.

*Raymond James Equity Research (8.31.12)

Blocking and tackling through shoulder season – Can power demand shoulder the burden? With record heat this summer, strong power demand has helped alleviate the weekly inventory builds below seasonal norms and last year’s levels. Meanwhile, the y/y surplus continues to shrink, and by our math, with 3,374 Bcf currently in storage and at least 10 more weeks of injections, using last year’s total injections of 864 Bcf and assuming that we run at least 3.5 Bcf/day tighter y/y, we should be able to avoid reaching max storage. However, this will require weather to cooperate and keep natural gas prices range-bound over the near term ($2.50 to $3.00) as switching will need to persist during shoulder season to help balance this equation. This is evidenced by the recent decline back from nearly $3.20/mcf to the $2.75/mcf level currently, coincidentally where we estimate the switching threshold is for the cheaper Powder River Basin (PRB) coals. With production climbing back to near-record levels, the uncertainty lies with weather, and assuming temperatures are more normal than last year, we should avoid hitting max capacity.

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