Current /NG:NMX Stock Info

Every Thursday, EnerCom’s Oil & Gas 360® will deliver media stories, company updates, and research commentary covering the natural gas spectrum. The theme for this week: Natural Gas and the Political Season.

NATURAL GAS INVENTORY (Week Ended 9/14/12)

Current: 3,496 Bcf
Actual Injection/(Withdrawal): 67 Bcf
Economist Average Estimate: 65 Bcf
Previous: 3,429 Bcf

Click here for the chart with five year averages.


*Obama’s delay leaves LNG exports on hold though election – Houston Business Journal

What remains a mystery about the Obama administration’s second delay to report on the commercial viability of exporting liquefied natural gas is exactly who benefits from such a move, my sources tell me. The step brings to a screeching halt any plans by Houston companies to join the race to export abundant LNG by the end of the year. Houston’s Cheniere Energy Inc. (NYSE: LNG) in May received the first permit to move forward with its plan to build a liquefied natural gas export facility on the Texas-Louisiana border. But the Energy Department has said it wouldn’t approve pending permit requests, including those filed by Houston energy companies such as Freeport LNG Development LP, before this study is complete. – Read More

*Romney, Obama coal clash won’t help natural gas – MarketWatch

While the coal industry continues to be hit by environmental regulations and a switch to cheap natural gas, analysts say that natural gas may not have much more to gain from what Republican candidate Mitt Romney has referred to as President Barack Obama’s “war on coal.” On Wednesday, Romney released new television ads that essentially accuse the Obama administration of threatening the livelihood of the nation’s coal workers, as coal plants risk shutdowns allegedly because of the president’s energy policies. In May, in response to accusations by Republicans that the Environmental Protection Agency was cracking down on coal, Obama said that his “all-of-the-above” energy plans seeks to develop all of America’s domestic natural resources, including clean coal. – Read More

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*Gas production up North Dakota – UPI

North Dakota officials said daily natural gas production is increasing at a rate greater than oil production in the state. The North Dakota Industrial Commission, part of the oil and gas division at the Department of Mineral Resources, reported that daily natural gas production for July, the latest date for which data was available, was 718 million cubic feet per day, a state record. “Daily natural gas production is increasing at a slightly faster than oil production,” the commission said in a statement. “This indicates that gas oil ratios may be increasing and more gathering and processing capacity will be needed.” The commission said that the number of rigs working on oil deposits in the shale formations of North Dakota, meanwhile, had “decreased significantly” to around 195. The decline, the NDIC said, was because operators were transitioning to higher-efficiency rigs. – Read More

*Utica Shale prospects dim amid disappointing lease offers – FuelFix

Chesapeake Energy Corp. (CHK) and other oil and natural-gas explorers in Ohio’s Utica Shale may have a tougher time raising drilling cash from joint ventures as investors trim offerings for stakes in undrilled fields. PDC Energy Corp. didn’t receive a high enough bid from would-be joint-venture partners for an interest in its Utica holdings and will develop the acreage on its own, the Denver- based company said today in a statement. PDC’s failure bodes ill for Chesapeake, the U.S. gas producer that’s searching for a joint-venture partner for its Utica assets, touted as a discovery to rival the Eagle Ford Shale in Texas. Chesapeake won’t get anything close to the $15,000 an acre Total S.A. (FP) paid last year for a stake in some of its Utica fields, said Neal Dingmann, an analyst at SunTrust Robinson Humphrey Inc. – Read More

*Lowest U.S. Gas Price Since 1999 Attracts GAIL: Corporate India – Bloomberg Businessweek

GAIL India Ltd. (GAIL), the first Asian company to buy liquefied natural gas from the U.S., plans to take advantage of the lowest prices in 13 years to boost imports from America and revive sales growth at home. India’s biggest natural gas distributor is in talks with U.S. exporters to make up for falling production at domestic fields, P.K. Jain, finance director at GAIL, said in a phone interview yesterday. The company aims to meet demand in Asia’s third-biggest economy through overseas purchases, he said. “We’re in discussions with various companies for long-term contracts because there will be demand in India and domestic output volumes are limited,” Jain said. “We’re looking to get LNG from the U.S. because prices there are cheap. And its affordable enough to transport it all the way to India.” – Read More

*Gasoline Sticker Shock Fuels Fiat Natural-Gas Auto Sales – Bloomberg Businessweek

For Fiat SpA (F), Italy’s austerity efforts have meant falling sales, stubborn losses and layoffs for thousands of workers. One business, though, has benefited mightily: the division that makes vehicles fueled by natural gas and propane. Deliveries of those cars in Italy surged 90 percent to 114,226 vehicles through August, accounting for 11.6 percent of the market, compared with 4.9 percent a year ago. That’s good news for Fiat, which says it has 90 percent of the market for natural gas cars and 47 percent of the propane car market in its home country. The boom takes some of the sting out of the 20 percent plunge in the Italian car market, to its lowest level in more than 30 years. Fiat is determined to export its advantage to the U.S., where regulatory changes are poised to boost interest. The spread of natural gas and propane vehicles is critical for Fiat, which has been developing the technology since the 1990s, because it doesn’t have an advanced electric-vehicle strategy. – Read More

*Eni Discovers Natural Gas in Pakistan at Field North of Karachi – Bloomberg

Eni SpA (ENI), Italy’s largest oil company, reported a natural gasdiscovery in Pakistan, a country where reserves have been in decline. The find was made 350 kilometers (269 miles) north of Karachi in the Khirtar Fold Belt region. The well was drilled in the Badhra Area B block to a depth of 2,450 meters, Eni said in a statement today. Eni said the size of the discovery was probably 300 billion to 400 billion cubic feet of gas in place. Pakistan’s total gas reserves were 27.5 trillion cubic feet at the end of 2011, down 5.5 percent from a year earlier, according to BP Plc (BP/)’s Statistical Review of World Energy. – Read More

*Argentina Eliminates Price Control on Natural Gas, Price Rises 300 Percent – Hispanically Speaking News

Argentine President Cristina Fernandez has announced plans for a 300 percent hike in natural gas wellhead prices, an increase aimed at spurring greater investment in that sector. During the inauguration of a diesel refinery in Ensenada, Buenos Aires province, the president said the price per cubic meter of gas will rise from around 3 cents to 13 cents, marking an end to price controls that have been in place for a decade. Fernandez said energy companies, including state-controlled energy firm YPF, will see their profits rise by a combined 900 million pesos ($200 million) annually as a result and that, in exchange, the firms will be expected to “respond with investments.” “I don’t give signals to the market. I’m not a signal-giver. I’m a president, who must give rational signals not only to the market but to all society,” Fernandez said. – Read More

*Shell Leads LNG Rivals to Sea With Biggest Ship – Bloomberg

For more than a decade, the world’s biggest liquefied natural gas producers led by Royal Dutch Shell Plc (RDSA) plotted how to move their $170 billion industry onto barges at sea to tap remote fields. Now they’re finally doing it. Shell will forge the hull of a floating LNG plant in South Korea by year-end that will be the world’s largest vessel, weighing six times the biggest aircraft carrier, a Nimitz-class warship. Some 5,000 workers will build the factory to produce LNG off Australia’s northwest coast in a $13 billion project that also will shield Shell from escalating costs it would have to pay at the country’s onshore plants. Rivals from Malaysia’s Petroliam Nasional Bhd. to GDF Suez SA of France likewise want to turn gas into liquid at sea, where many of the largest finds were made in the last decade. It’s a generational change for a land-based industry that started about 50 years ago in Algeria, where Shell provided technology for Camel, the first commercial LNG plant. Today those facilities typically cost at least $20 billion to build. – Read More

*Ministry Cuts Proposed Natural Gas Tax – The Moscow Times

The Finance Ministry on Thursday cut the rate at which it aims to increase the tax on the extraction of natural gas, easing fears among producers that their tax bills would become almost unaffordable. The ministry said it was proposing changes to the tax code suggesting new rates of mineral extraction tax for Gazprom and other smaller producers, which are barred from selling gas abroad. The new proposals were published after gas producers objected that the initially planned increases could lead to cuts in output as a result of a lack of investment. Gazprom has already suffered from lower gas demand due to financial troubles in Europe, its key source of revenues, as well as an increase in the use of cheaper gas from the spot market in the European Union and the influx of alternative fuel such as liquefied natural gas. The Finance Ministry revealed that it was softening its position on the tax earlier this week, but it has now provided more concrete figures. – Read More

*Apache to Sell Stake in Kitimat LNG – NASDAQ

Recently, U.S. energy firm Apache Corporation ( APA ) announced its decision to divest 20% stake in Kitimat liquefied natural gas (LNG) export project.  This $15 billion venture is led by Apache (with 40% share) in partnership with Encana Corp. ( ECA ) and EOG Resources Inc. ( EOG ) (with 30% stake each). Among the various gas-liquefaction projects announced so far, the Kitimat LNG facility is considered to be the most sophisticated, while the remaining are still in their initial development phases. This enables Canadian exporters of oil and gas to expand out of the North American market.  Management at Apache stated that the company and its partners will reduce their shares in the Kitimat LNG project proportionately to offer the 20% stake. They also added that major buyers are from North Asia but the company intends to offer equity to foundation buyers or large investors. – Read More

*LNG imports set August record – Bloomberg

Japan’s 10 regional power utilities imported 5.31 million metric tons of liquefied natural gas in August, a record for the month, the Federation of Electric Power Companies said Friday. Imports rose 0.6 percent from the 5.28 million metric tons imported in August 2011. Utilities including Tokyo Electric Power Co. consumed 5.09 million tons of LNG in the month, up 5.7 percent from a year earlier, while fuel oil consumption rose 47.8 percent to 1.57 million kiloliters. – Read More

*Chevron finds more gas in Australia’s deepwater Gorgon area – Platts

Chevron has discovered more gas in the deepwater Greater Gorgon area off Western Australia, where it is developing two large LNG export projects, the US major said Wednesday. “The continued exploration success in the Carnarvon Basin could help underpin expansion opportunities at our LNG projects in Australia and support our drive to become a leading supplier of LNG to world markets and domestic gas to Western Australia,” Chevron Asia Pacific Exploration and Production Company President Melody Meyer said in a statement. The Satyr-2 discovery, Chevron’s fifteenth in Western Australia since mid-2009, is located in the WA-374-P permit area, approximately 120 km (74 miles) northwest of Barrow Island, which hosts the company’s Gorgon LNG project. The exploration well found 39 meters of net gas pay after drilling to 3,796 meters below the seabed in 1,088 meters of water, the company said. – Read More


*Raymond James Equity Research (9.19.12)

In our Energy Stat of the Week from May 21, “Will LNG Exports Rescue the North American Natural Gas Market?” we highlighted the long-term potential for the U.S. to become a meaningful exporter of liquefied natural gas (LNG) – but also the numerous hurdles before this could materialize. Following up on that Stat, today we provide an update on the industry’s complicated trek towards LNG exports. Case in point: this week, the Department of Energy significantly pushed out its major, long-awaited study that is supposed to quantify what effect LNG exports will have on domestic natural gas prices. The “official” reason is that the outside consultant putting together the report will need until the end of the year – rather than the original timeline of mid-2012. However, given that this news comes as the presidential campaign enters its final weeks, we don’t think we are being overly cynical by pointing out that there might be some political overtones as well. While LNG exports are clearly not a major campaign issue, it’s safe to say that the Obama administration would rather avoid dealing with this until after the November 6 election.

The delay in the DOE study means that a large number of pending domestic LNG export projects will remain in limbo until 2013. As shown below, the only U.S. project to have been fully permitted is Cheniere’s Sabine Pass. Another ten are undergoing their slow, tedious permitting process: six have DOE approval but not FERC approval, and four don’t yet have either of the two approvals. The administration has made very clear that no further permits will be given until after the DOE study is completed.

As we noted in the Stat from May, there is real political opposition to U.S. LNG exports. While this issue does not have the public profile of, say, the Keystone XL pipeline, there is an environmental dimension to the opposition. The main opponents, however, are industries with a vested interest in seeing ultra-low gas prices continue indefinitely: gas utilities and manufacturers. Both the American Public Gas Association and the Industrial Energy Consumers of America have been actively lobbying for LNG export permits to be delayed or halted altogether. In the context of the election campaign, the partisan divide on this issue is not always straightforward, but in general, congressional Democrats have been more inclined to oppose U.S. gas (and oil) exports.

Regulatory hurdles are one reason why U.S. (and Canadian) LNG export projects experience chronic delays. In fact, in just the four months since our Stat, no less than three projects announced pushouts. Apache-led Kitimat’s expected startup shifted from 2015 to 2016; and Freeport’s and Lavaca Bay’s targets both moved from 2016 to 2017. The Exxon/Qatar Petroleum project at Golden Pass became the newest applicant during this time frame, with timing as yet unclear but in no case earlier than 2018.

*Tudor Pickering Holt & Co. (9.19.12)

US LNG exports ($2.75/Mcf) – DOE’s LNG report examining gas export impact on domestic gas users (power prices, industrial users) represents the major hurdle to US liquefaction/exports.   Now, report delayed 2nd time (to year-end, initially expected Mar-2012).  Rhetoric points to complexity of analyses but motivations also likely political (election staring at us).  13 potential US projects (>22bcf/d).  While we believe exports will happen, they are likely limited by regulations, financing / economics.  First movers are advantaged (e.g. Cheniere, Freeport)…TPHe 5-6bcf/d US LNG capacity by 2025.

*UBS Investment Research (9.18.12)

Forecasting a 60-70 Bcf injection to be reported this week. We expect the EIA to report a 60-70 Bcf injection, below both 2011’s 89 Bcf injection and the 5-year average of a 78 Bcf injection. We estimate inventories increased to 3,494 Bcf, narrowing the surplus vs. 2011 and the 5-year average to 293 and 288 Bcf, respectively.

Weather cooler last week vs. 2011 and the 5-year average. Last week’s weather was 8% and 11% cooler than the comparable year-ago week and 5-year average, respectively. Since May, weather has been 3% cooler than 2011 but 7% warmer than the 5-year average. Roughly 11% of CDDs remain ahead of us.

Forecasting storage to peak this Fall at 3.85 Tcf. We estimate the weather-adjusted S/D balance was little changed WoW for the week ending 9/7. We estimate the weather-adjusted S/D balance has been ~3.8 Bcfd undersupplied vs. the 5-year average and ~4.9 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 3.85 Tcf on October 31 (0.17 Tcf above the 5-year average).

E&Ps are discounting $4.60/Mcf long-term, normalized natural gas prices. This compares to the 2012 and long-dated (2016) futures curves of $2.70/MMBtu and $4.33/MMBtu. Our top E&P picks are: APC, NBL, EOG, OXY and MRO.

*Global Hunter Securities (last week 9.13.12)

On September 11, the Queensland State in Australia announced a tax hike on coal mining companies. The tax hike is expected to raise A$1.6 billion dollars in additional revenue over the next four years; it increases royalty rates on coal from 10% for every tonne sold over A$100 to 12.5% for every tonne sold between A$100 to A$150, and to 15% for every tonne sold over A$150. After this, the Queensland State Government has agreed to leave the royalty rate unchanged for the next ten years. The increased royalty rate is expected to materially impact the coal industry and stall planned development of the remote Galilee Basin. We believe it will put additional pressure on high cost producers and cause companies to idle marginal production.


Queensland raises coal royalty rate. The Queensland State Government has raised the royalty rates on coal from 10% for every tonne sold over A$100 to 12.5% for every tonne sold between A$100 to A$150, and to 15% for every tonne sold over A$150.

Increased revenue. The government expects to raise A$1.6 billion over the next four years; however, the industry believes this will lead to a decline in production and it claims the revenue figure is optimistic.

High-cost production faces more headwinds. Australian thermal coal prices are currently trading just below $92 per tonne and metallurgical coal is around $200 per tonne. At these prices a significant portion of the Australian coal industry is losing money. With an increase in royalty rates, we believe more capacity will be shut-in.

Takeaway. The increased royalty rates combined with weak coal fundamentals should result in more capacity being shut-in. Australia produces some of the highest quality metallurgical coal in the world. We note that in our coverage universe, Walter Energy (WLT) produces metallurgical coal on par with Australia, but produces no coal in Australia.

*Wells Fargo Equity Research (last week 9.13.12)

APA/EOG: Official Projects Kitimat First Liquefaction Facility Operating in Western Canada (Tameron). Speaking during the World Economic Forum in Tianjin, China, British Columbia  Premier Christy Clark projected that the Kitimat project would be the first Western Canadian liquefaction facility. Noting that three projects are expected by 2020, she indicated that the first (Kitimat) could be operating as early as 2016. Her projection is slightly ahead of Apache’s own expectation of 2017, assuming final investment decision in early 2013. Given the spate of competing projects that have been announced recently, we believe her statement could potentially provide a lift to the marketing effort.

As a reminder, last October Canada’s National Energy Board approved a 20 year export license for the Kitimat LNG project. The license authorizes 9.4 Tcf over a 20-year period, with a maximum annual export total of 468Bcf, likely to the Asian Pacific region. The project is currently awaiting 1) an oil-linked off take agreement, 2) a FEED study and 3) Final Investment Decision. The partners continue marketing the project (as it did earlier this week during an LNG industry conference in Singapore). The project is led by 40% partner Apache Corporation (APA, Outperform/$90.47), with EOG Resources (EOG, Outperform/$112.97) and EnCana (ECA, Not Covered) both at 30%.

*Baird Equity Research (last week 9.13.12)

September 7 natural gas storage report neutral for near-term gas prices as injection in line with consensus, though tightness up significantly which is a major positive in our view. Warmer weather returned (+60% CDD vs. normal, +70% Y/Y) bringing with it increased tightness at -7.0 Bcf/d (hurricane impact estimated at -1.6 Bcf/d for the week). The 27 Bcf injection reduced the storage surplus to +9% vs. the five-year average, which is down from +12% just two weeks ago.

Injection in line with the Street. The EIA reported 3,429 Bcf of working natural gas in storage as of Friday, September 7, representing a 27 Bcf injection from the prior week. The report was neutral versus the Bloomberg consensus estimate of a 26 Bcf injection (range of 19-39 Bcf) our 27 Bcf estimate. Second consecutive week of elevated market tightness likely viewed positively by the Street given previous volatility; market seems to be getting more comfortable with fall outlook as highlighted by front month futures trading at ~$3.00/MMBtu.

Market tightness up materially on warmth/hurricane. Market tightness (relative under-supply) was -7.0 Bcf/d, well ahead of last week’s -4.9 Bcf/d and the prior six week average of -2.6 Bcf/d, as warmer weather and hurricane-induced shut-ins weighed on the supply/demand balance for the week. We estimate the Hurricane impact to be -1.6 Bcf/d for the week ended 9/7 with ~36% of Gulf gas production shut-in for the week on average. Gulf production back to normal now with week end 9/14 impact estimated at just -0.2 Bcf/d.

Fall storage outlook remains key. Current working gas storage remains well above one-year and five-year averages at 317 Bcf and 280 Bcf higher, respectively. Ultimately, storage is down materially from March peaks of 893 Bcf (+57%) and 928 Bcf (60%), respectively. The last two weeks of tightness reduced the five year surplus materially to 9% from 12%, improving investor sentiment.

Strong price action over the last week; down today. At the time of writing, front month (October) gas futures trading down >2% at ~$3.00/MMbtu, up ~14% since last Friday.

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. -1.0 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.

*UBS Investment Research (last week 9.13.12)

Injection in line with consensus and our estimate. Storage rose 27 Bcf, in line with consensus of 27 Bcf and the UBSe range of 25-35 Bcf. The injection was below both 2011’s 87 Bcf injection and the 5-year average of a 67 Bcf injection. Inventories are now 3,429 Bcf, narrowing the surplus vs. both 2011 and the 5-year average to 317 Bcf and 301 Bcf, respectively.

Weather last week much warmer vs. 2011 and the 5-year average. Last week’s weather was 62% and 47% warmer than the comparable year-ago week and 5-year average. Since May, weather has been 3% cooler than 2011 but 8% warmer than the 5-year average. Roughly 15% of CDDs remain ahead of us.

Forecast injection of 60-70 Bcf next week. We forecast a 60-70 Bcf injection next week, below both 2011’s 89 Bcf injection and the 5-year average of a 78 Bcf injection. Over the last month, the weather-adjusted S/D balance has been ~3.8 Bcfd undersupplied vs. the 5-year average and ~4.9 Bcfd undersupplied vs. 2011. We expect storage to build to a record peak of 3.85 Tcf on 10/31 (0.17 Tcf above the 5-year average and near capacity).

E&Ps discounting long-term prices of $4.60/Mcf. This compares to the 2012 and long-dated (2016) futures curves of $2.73/MMBtu and $4.36/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 12 Bcf of lingering 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 4 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 60-70 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. We believe 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.

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.

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