Current /NG:NMX Stock Info

The drop in crude oil prices is well documented, but will natural gas follow suit with winter approaching?

The West Texas Intermediate spot prices closed at a two year low of $80.52 yesterday, down a total of $19.90 in the last three months (22.9% overall). Price cuts from Saudi Arabia have prompted the market to focus solely on supply news rather than political news, a German trader told Bloomberg on Thursday.

The natural gas market, on the other hand, is not expected to board the same price rollercoaster as its partner fuel source. The ...

Analyst Commentary

KLR Group (10.23.14)

Storage overview

The EIA reported a 94 Bcf storage build, 6 Bcf below our 100 Bcf estimate and 4 Bcf below the 98 Bcf build consensus.

The East region showed a 47 Bcf build, the Producing region showed a 39 Bcf build and the West region showed an 8 Bcf build. Storage stands at 3,393 Bcf, ~9% below last year and ~9% below the five-year average. The data suggests the market is ~1 Bcfpd oversupplied on a weather-normalized quarterly moving average basis. Notably, gas was up ~$0.04 following the storage report.

Supply/demand trends

Over the past four weeks, gas-fired power demand has been trending up ~1.5 Bcfpd y/y, while industrial demand has been averaging up ~1 Bcfpd y/y over the past month. Further, the data suggests gas-fired power demand is up ~1.2 Bcfpd y/y on a weather-normalized monthly moving average basis.

Over the past month, Canadian net imports are up ~0.5 Bcfpd y/y, Mexican net exports are up ~0.3 Bcfpd y/y, and LNG send-out was down ~0.2 Bcfpd y/y.

In ’14, we anticipate gas-fired power generation should decline approximately 0.5 Bcfpd given the remaining transitory gas-to-coal power switching occurred in the first quarter with ~$5 gas prices.

Recent EIA U.S. supply data indicates July production averaged ~70.4 Bcfpd. We anticipate U.S. supply exits ’14 at ~71.4 Bcfpd. Rig activity is currently ~330 rigs and we expect an average of ~330 rigs in ’14.

Thesis (as of October 9, ’14)

With the expectation of a ~330 average gas rig count in ’14, U.S. onshore supply should increase almost 4 Bcfpd this year versus our earlier expectation of ~3.8 Bcfpd. This implies stabilizing gas well/rig productivity and suggests a ~300 gas rig count is sufficient to maintain market equilibrium.

In ’13, we observed 3+ Bcfpd of associated gas production growth (1,373 oil rigs). Assuming an average 1,530 oil rig count this year, we expect 4+ Bcfpd of growth in gas production related to oil-directed drilling.

In ’15, a ~300 gas rig count and ~1,600 oil rig count should comfortably maintain gas market balance, reconcile with a ~$4 NYMEX gas price signal and correspond to gas-weighted E&P’s modestly outspending cash generation.  

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