NATURAL GAS INVENTORY (Week Ended 4/5/13)
Current: 1,673 Bcf
Actual Injection/(Withdrawal): (14) Bcf
Economist Average Estimate: (16) Bcf
Previous: 1,687 Bcf
Click here for the chart with five year averages.
NATURAL GAS IN THE MEDIA
*Fracking Doesn’t Cause Significant Earthquakes, Study Says – Bloomberg
Hydraulic fracturing used to access oil and gas from rock and shale hasn’t caused “significant” earthquakes, according to a study by Durham University. “Hydraulic fracturing is not a significant mechanism for inducing felt earthquakes,” Richard Davies, director of the U.K. university’s energy institute, said today in a statement. “The size and number of felt earthquakes caused by fracking is low compared to other manmade triggers such as mining, geothermal activity or reservoir water storage.” Tremors aren’t the only concern about the method, known as fracking, according to a Greenpeace statement. “Communities have also expressed concern about noise, disruption, traffic, falling house prices and a general industrialization of the English countryside,” Lawrence Carter, an energy campaigner for the environmental group, said in the statement. Cuadrilla Resources Ltd. drilling caused two tremors in 2011 in northwest England, leading to an 18-month moratorium on fracking, which uses water, chemicals and sand to blast underground rock and release trapped fuel. The government lifted the ban in December and is preparing tax breaks to encourage drillers as it seeks to expand domestic energy sources amid declining North Sea fossil fuel production. The Durham study of hundreds of thousands of fracking operations since 1929 found the process has the potential to reactivate dormant faults, the university said. – Read More
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*New Solar Process Gets More Out of Natural Gas – NY Times
The Energy Department is preparing to test a new way for solar power to make electricity: using the sun’s heat to increase the energy content of natural gas.Researchers at the Pacific Northwest National Laboratory in Richland, Wash., hope by this summer to carry out the test, which entails a process that could cut the amount of natural gas used — and the greenhouse gasses emitted — by 20 percent. “We can reduce carbon dioxide emissions, and the consumer doesn’t get hit,” said Robert Wegeng, the researcher in charge of the project. The system is a marriage of chemical engineering and mechanical engineering. The process will work anywhere it is sunny, according to researchers, although it might be more valuable in places where natural gas is relatively expensive, or where a company making electricity would be paid for generating less carbon dioxide. The project, financed with $4.5 million in federal stimulus money, is still in development, and experts say the technology’s costs have yet to be established. The process also is several major steps away from commercial viability. Using the sun’s heat to make electricity is hardly new; as far back as 2007, companies were building plants with parabolic mirrors to boil water into steam and turn a turbine. In Australia, Areva built a plant that helps reduce the amount of coal needed to make electricity by using solar power to preheat the water that the burning coal boiled into steam. The new system captures solar energy in a chemical form, using the sun’s heat to break open the molecules of natural gas (four hydrogen atoms and one carbon atom) and water (two hydrogen atoms and one oxygen atom) and reshuffle them into something that burns better: carbon monoxide and pure hydrogen. The result also has carbon dioxide, which is inert. – Read More
*US recoverable natural gas estimate jumps 26 percent – FuelFix
Reflecting both new information about natural gas reservoirs and advances in technology, a committee convened to study natural gas resources said Tuesday that the United States has 2.4 quadrillion cubic feet of natural gas that can be recovered by current drilling techniques. That’s 26 percent higher than the previous assessment at the end of 2010. The Potential Gas Committee, made up of representatives from energy companies working in various natural gas basins, has produced an assessment of the potential supply of natural gas every two years since 1964. “The news is good,” said John Curtis, professor emeritus of geology and geological engineering and director of the Potential Gas Agency at the Colorado School of Mines, who worked with the committee to produce the assessment. The American Gas Association, which helped to launch the report Tuesday, has pushed for expanding the use of natural gas, including as a transportation fuel, and in comments filed with the Department of Energy earlier this year, said it does not oppose exports of liquefied natural gas. Chris McGill, vice president for policy analysis at the association, noted the combination of technological advances and the widespread availability of natural gas in virtually all parts of the country, making the opportunity widespread. “Certainly the American Gas Association sees a great opportunity within this country,” he said. – Read More
*US Hears Footsteps of Global Challengers in NatGas Boom – CNBC
The United States, currently one of the world’s largest sources of natural gas, may find itself fending off increasingly stiff competition in the resource’s development, as the move to tap natural gas supplies goes global. Considered by energy watchers to be one of the most promising avenues of energy development, natural gas is cleaner, more abundant and relatively less expensive than regular gas. The resource is being used in an ever-increasing array of activity, from generating electricity to powering locomotives and public transport – which is putting upward pressure on market prices. Fewer regions have moved to harness natural gas as aggressively as the U.S., which accounts for more than a fifth of global natural gas consumption, according to data from the Worldwatch Institute, an environmental think-tank. Still, global interest in the fossil fuel is on the rise as countries like Russia and Qatar move aggressively to tap their natural gas resources, with others like Israel following suit. The global interest poses a challenge to the U.S.’s growing clout in the sector. In addition to international oil giants like Norway’s Statoil and Chevron exploiting natural gas, Australia and countries in Africa and South America “are discovering gigantic fields all over the planet,” said Richard Hastings, senior macro strategist at Global Hunter Securities. Development is “very robust and competitive,” he added. America’s energy revolution has been in part hampered by a reluctance to ship its natural gas bounty to other countries. According to the U.S. Energy Information Administration, Russia and the U.S. are running neck and neck for the title of the world’s largest natural gas reserves. – Read More
*Shale Boom Transforming U.S. Industry to Boost BHP, CFO Says – Bloomberg
BHP Billiton Ltd. (BHP), the biggest mining company, said the shale boom in the U.S. will spur an industrial revival and transform the world’s largest economy. “There are always opportunities for exports in the U.S. and Canada, but I think there’s a push and a growth of re- industrialization in the U.S. that will consume a lot of the energy in that country and give them a great opportunity to grow going forward, and we’re well positioned for that,” BHP Chief Financial Officer Graham Kerr said yesterday at the Bloomberg Australia Economic Summit. In contrast, in Melbourne-based BHP’s homeland, Australia, companies from Chevron Corp. (CVX) to ConocoPhillips (COP) are investing almost $200 billion on plants to export liquefied natural gas to Asia. Under outgoing Chief Executive Officer Marius Kloppers, BHP spent $20 billion in 2011 buying shale assets in the U.S. to tap a projected increase in demand for energy. “The energy division is very important to BHP and perhaps it didn’t receive much investment in the previous years so they needed to underpin the growth story there,” Tom Price, a Sydney-based analyst at UBS AG, said yesterday in an interview at the economic summit. In terms of strategy, “they seem to have positioned themselves well,” he said. U.S. crude-oil output in the fourth quarter this year will exceed imports for the first time since 1995, as fields in North Dakota and Texas put the nation on track to surpass a production record set a quarter-century ago, the U.S. Energy Information Administration said last month. Domestic gas output is forecast by Bloomberg New Energy Finance to increase 25 percent by 2020. – Read More
*US energy secretary nominee to use better data for LNG decisions – Platts
President Barack Obama’s nominee for energy secretary, Ernest Moniz, on Tuesday reiterated the Obama administration’s position that decisions to license liquefied natural gas exports from the US should be based on a transparent, analytic approach that considers cumulative economic impacts. “We need to have strong analysis grounded in the best data,” Moniz said. “As we move forward in any determinations, including those that I understand I will tackle if confirmed, in terms of the export license question, we certainly want to make sure that we get decent data is relevant to the decision at hand.” Moniz said that if confirmed, he would closely examine the applications, and said they should be reviewed in an application-by-application basis.”There are many factors. For example, really understanding and observing what happens with elasticity of production when there are exports,” Moniz said. “Are we producing more gas? Are we producing more wet gas, which provides more natural gas liquids for our manufacturing industries?” Moniz, a physicist at the Massachusetts Institute of Technology, made the comments during a wide-ranging hearing with the Senate Energy and Natural Resources Committee to consider his nomination. A massive increase in US shale-gas production has led to calls for more LNG exports, but that has proved controversial. Some opponents of exports it will drive up the cost of natural gas in the US, putting pressure on domestic manufacturing, which has benefitted from cheap gas prices. Law requires DOE to quickly approve applications for LNG exports to countries with which the US has a free trade agreement, but to export to non-free trade agreement countries — which include Japan and some in Europe that hope to import LNG from the US — companies must apply through DOE. The agency is considering 16 applications to non-FTA countires, and has approved only one other. Senator Ron Wyden, the chairman of the committee, has been critical of a previous study from DOE on LNG exports, but said that he was happy with the response from Moniz on his concerns. – Read More
*Shale Gas Isn’t a Low-Emissions Fuel — Yet – Bloomberg
Too much valuable methane from natural gas is leaking into the atmosphere, hurting the bottom line as well as the climate. We know how to stop it. It’s cheap to do, and it can pay for itself. Natural gas production in the United States has been booming—and is expected to keep growing. Already, there are more than 500,000 wells and 300,000 miles of pipeline in place. In 2012, U.S. producers brought more than 25 trillion cubic feet of natural gas to market. And, by 2020, the United States is projected to be a net exporter of natural gas. Natural gas is here to stay. Its low price is spurring investment and jobs, and increasing energy security. But it’s important to get it right. Much of the growth is driven by hydraulic fracturing — or “fracking” — a process in which producers can drill more than one mile down and one mile across to access gas in rock formations. While shale gas has been an economic boon, the process can contaminate water supplies, cause air pollution, and have other disruptive impacts on the land and communities. Without methane leakage, natural gas would create only about half the greenhouse gases per unit of energy as coal. Yet, methane is 72 times more potent than CO2 measured over 20 years, which is particularly important given that climate change is happening even more quickly than many models have predicted. (Methane has around 25 times more warming potential than CO2 over a 100 year timeframe.) At around three percent leakage, natural gas becomes more harmful than coal in the near term. WRI recently conducted an analysis to find out what we know about U.S. methane emissions from natural gas and what can be done to rein them in. What We Know About Fugitive Methane According to the most recent estimate from EPA, more than 6 million metric tons of fugitive methane leaked from U.S. natural gas systems in 2011. In terms of climate impacts, that’s equivalent to 432 million metric tons of CO2 per year over a 20 year time horizon—that’s more than CO2 emissions from all sources in Australia in 2011. It’s also more greenhouse gases than from all U.S. petroleum refining, iron and steel, cement, and aluminum manufacturing facilities combined. Methane leaks are estimated to be around two to three percent of total production – though there is troubling uncertainty around the total. The biggest source of emissions is from new wells. Starting up a new gas well is like popping a Champagne bottle: it releases gas under pressure quickly and with force. Emissions can also leak out through the production process, if proper safeguards are not in place. – Read More
*Woodside cancels plans for LNG processing plant at James Price Point – Perth Now
ENERGY giant Woodside has reportedly scrapped plans for its controversial $45 billion Browse joint-venture at James Price Point near Broome. WA Premier Colin Barnett said this afternoon that he had not been informed of the decision. Asked by Opposition leader Mark McGowan if he had been advised by Woodside that the project had been rejected by the consortium, Mr Barnett today told Parliament it was not for him to divulge market-sensitive information. The Sunday Times revealed in January that the proposed LNG hub in the Kimberley was unlikely to proceed because of escalating costs that threatened its profitability. The Woodside joint venture, which had been due to announce a decision before June, has decided against proceeding with the onshore hub at James Price Point, which has attracted fierce opposition from environmentalists and many locals. The decision has torpedoed a $1.5 billion benefits package negotiated with native title claimants, the Goolarabooloo Jabirr Jabirr, although some compensation may be negotiated. PerthNow understands the final decision not to proceed came after a meeting on Monday night. Greens MP Robin Chapple called on the state government to rescind the Browse Land Agreement Act. “If it doesn’t, the sword of Damocles will hang over the Kimberley for the next 10 years,” he said in a statement. – Read More
*Energy Journal: Shale Ripples Hit Middle East and Russia – WSJ
Huge increases in U.S. oil and gas output are reshaping energy markets in ways unthinkable as recently as three years ago. Crude oil is no longer being drawn to America. Natural gas is flavor of the month, every month, seemingly everywhere. The U.S. is enjoying an era of cheap energy it thought had gone the way of the 10 miles-a-gallon Chevy Camaro. Fracking has entered the popular lexicon. Everyone has an opinion. OPEC, the cartel of producing nations born amid the chaos of the 1970s oil crisis, is widely seen as having the most to lose—influence, market share, sufficient revenue to keep their growing populations in the style to which they have become accustomed. Non-OPEC producers without access to shale formations are also looking nervously at the U.S. Believe it or not, there are even some losers in North America. OPEC has delivered its most comprehensive response yet to the perceived threat from U.S. shale oil. In a speech seen by The Wall Street Journal’s Summer Said, one of the kingdom’s top oil advisers said any fear is misplaced, as the extra supply in North America is relatively small and uncompetitive. On the other hand, Russia, the world’s largest producer of oil by volume, has admitted quite frankly that its economy is threatened by output increases in the U.S. A group of government-linked experts has warned of the potential for a 20% fall in Russian crude exports. In turn, this would cause the energy industry’s share of GDP to fall from 40% to 15%. The higher output in the U.S. has of course depressed prices there. This has led market speculators to get out of the main North American oil contract, Nymex WTI, and for the first time make more use of ICE Brent, the European benchmark. The Financial Times says this ends 30 years of WTI being the global benchmark oil contract in financial markets. The WTI contract will rebound when, as is likely, sufficient transport capacity is unlocked to allow the glut of crude to find its way to coastal refineries. At that point, everything changes again. – Read More
RESEARCH COMMENTARY
*CLSA (4.11.13)
$4 natural gas has caught most by surprise, especially our competitors who are expecting $3.63 in 2013. The price improvement will likely stir ample discussion from analysts on 1Q13 conference calls about moving money back to gas. While we want to know the answer as well, we don’t think we’re going to get much more than “we’re happy about our current situation,” or “we’ll review our budget mid-year.” Most oil plays are still more economic than gas plays and we don’t see material changes in budgets unless gas continues to climb above $4.50. We continue to view Cimarex as our top pick. We have adjusted our 1Q13 estimates in Figures 10-11 after accounting for commodity realizations.
Budget flexibility
It is too early to shift current budgets based on the recent tear in natural gas. E&Ps, while nimble, tend to take a longer view in their budgeting decisions. The way we see it is a pure oil well still generates the best economics followed closely by an associated gas well. Therefore, while analysts will approach the question in many different ways in order to garner a response, the short of it is don’t expect much change. EnCana mentioned putting rigs back to work in the Haynesville in February, but that was part of its budget versus shifting/increasing capex. We are still polishing up our breakeven gas estimate based off 10-Ks, but initial work shows little change from last year’s $5.00 estimate.
2014 hedges
The industry is well hedged for 2013. With $2 gas still fresh, not to mention the downtrend since 2010, the positive price move provided a much needed ability to secure budgets. Though, due to this hedging, earnings won’t be affected much by higher gas this year. We’ll watch to see how companies are viewing 2014 gas by their hedge positions. It would not be surprising to see companies at over 50% hedged with swaps for 2014. This would be somewhat of an anomaly, but understandable.
Concern shifts to liquids
Solutions abound in getting oil to the highest price points. Be it pipe, rail, truck or barge, domestic markets are all filling up. And Canada hasn’t fully figured out how to get her extra barrels to the US. Point being, to assume $94 oil forever (we do) is great for models, but needs to be stressed in reality. Oil production is up 13% to 7.1 MMbbl/d over last year’s 6.8 MMbbl/d and production will likely continue to the 7.3 MMbbl/d range. On the NGL side, pricing continues to bounce along recent lows of about 31% of WTI. This could cause more ethane rejection. Of note, we don’t view ethane rejection as a reason to fear higher gas inventories. By our math, the impact would be an incremental 35 Bcf for the year.
18 estimates range from (46) Bcf to 3 Bcf
The median consensus estimate is a 14 Bcf withdrawal. The five-year average change for this time of year is a 15 Bcf injection. Last year, inventories increased 11 Bcf. Last week, inventories decreased 94 Bcf versus the consensus estimate of a 92 Bcf withdrawal. There were 126 HDDs (heating degree days) during the week ending 5 April compared to the five-year average of 97 HDDs, last year’s 84 HDDs and the prior week’s 168 HDDs.
*Howard Weil (4.11.13)
Natural Gas Hybrids Update: Revising Our Commodity Price Forecast; Adjusting Estimates and Price Targets Full Report
Quick Take: We have updated our forecasts and price targets for the Natural Gas Hybrid group with the recent revisions to the HW commodity deck. 1Q13 now incorporates the bid-week actual price for the quarter and we have revised upward our near-term expectations for both gas and oil. For a complete look at the natural gas price commentary, please refer to the (Natural Gas Macro Update, 4/11/12). Minimal changes to our overall valuations (only one price target move) as our 2014 and long-term pricing assumptions remained unchanged.
Numbers Update: Our earnings and cash flow estimates are moving up for the group overall. Earnings expectations for 1Q13 were most significantly changed at EGN and EQT where they are increasing 2% and declining +8%, respectively. For the same companies, estimates for 2013 are increasing +3% and 2%. The remaining companies in the group (MDU and NFG) were most resistant to the updated commodity pricing assumptions with slight changes for the year. Compared to 2013 consensus estimates, EQT and NFG show the greater premiums of 10% and +6%, respectively. However, for 1Q EQT stands 7% lower, while NFG is 3% higher.
*Wells Fargo Securities (4.11.13)
APA, EOG: Argentine Government Fighting Inflation with Transportation Fuel Price Caps…Just Two Month After Tripling Price of Gas Used in Power Generation (Tameron). In an effort to fight rampant and some say understated inflation, the Argentine government today announced that it would freeze the retail price of gasoline and diesel for six months. The end of the period coincides with October’s legislative elections. Interestingly, it was just two months ago that the government announced new subsidies would triple the price paid to natural gas producers, to $7.50/MMBtu, up from $2.50/MMBtu. The subsidy is intended to advance development of the Vaca Muerta and is funded by an increase in the consumer prices for natural gas and electricity. While we recognize the distinction between the two plans, we expect the government’s movement back toward a centrally controlled economy may have a chilling effect on investment and, ultimately, the development of the Vaca Muerta shale.
*UBS Investment Research (4.8.13)
Forecasting a 10-20 Bcf withdrawal to be reported this week. We expect the EIA to report a 10-20 Bcf withdrawal in storage inventories, compared to 2012’s 6 Bcf injection and the 5-year average of a 14 Bcf injection. We estimate inventories decline to 1,672 Bcf, widening the deficit to 2012 and the 5-year average to 806 Bcf and 60 Bcf, respectively.
Weather last week colder than 2012 and the 5-year average. Last week’s weather was 50% and 27% colder than the comparable year ago week and the 5-year average, respectively. Since September, weather has been 17% cooler than last year and 1% cooler than the 5-year average.
Forecasting storage to enter next winter at 3.6 Tcf on November 1. We estimate the weather-adjusted S/D balance loosened ~0.5 Bcfd WoW for the week ending 3/29/13. And we estimate the weather adjusted S/D balance has been ~3.7 Bcfd undersupplied vs. the 5-year average and ~2.4 Bcfd undersupplied vs. the year ago over the last month. We expect storage to enter next winter at 3.6 Tcf on November 1st (below the 5 year average of 3.75 Tcf).
E&Ps are discounting $4.35/Mcf long-term, normalized natural gas prices. This compares to the 2013 & long-dated (2017) futures curves of $3.98/MMBtu & $4.45/MMBtu. Our top E&P picks are: APC, MRO, NBL, and CLR.
*Raymond James Equity Research (4.8.13)
We Are Raising 2013 and 2014 Gas Prices as Higher Gas Prices Are Needed to Ensure Full Year-End 2013 Gas Storage.
While Punxsutawney Phil’s prognostication for an early end of winter was wrong and we saw gas prices increase, the colder winter ending weather has made us more bullish on gas prices for 2013, thus we are raising our 2013 gas price forecast by $0.60 from $3.25/Mcf to $3.85/Mcf. While we are raising our 2013 numbers, this is still slightly below the strip as we believe higher winter prices will encourage a reversal in the coal-to-gas switching through spring 2013. Thus, we expect summer 2013 natural gas prices to strengthen as the market struggles to re-fill gas storage this summer. Longer term, gas fundamentals should continue to be relatively tight as cheap U.S. natural gas prices encourage solid demand growth but low-cost shale gas allows the 2014 gas price to balance the supply and demand at $4.00/Mcf. This represents a $0.25 increase from our prior forecast. Longer term, we remain convinced that both U.S. gas demand and U.S. gas supply can grow profitably at a $4.25/Mcf gas price.
*UBS Investment Research (last week 4.4.13)
Storage withdrawal in-line with consensus and UBS forecast. Storage fell 94 Bcf, slightly above consensus expectations of a 91 Bcf withdrawal but in-line with the UBSe range of a 90-100 Bcf withdrawal. This week’s withdrawal compares very favorably to both 2012’s 42 Bcf injection and the 5-year average of a 4 Bcf withdrawal due to colder than normal weather and a tighter S/D balance. Inventories are now 1,687 Bcf, widening the YoY deficit to 785 Bcf and flipping the long-running surplus vs. the 5-year average to a deficit of 31 Bcf.
Weather was much colder than 2012 and the 5-year average last week. Last week’s weather was 126% and 37% colder than the comparable year ago week and the 5-year average, respectively. Since September, weather has been 16% cooler than last year but in line with the 5-year average.
Forecast 10-20 Bcf withdrawal next week. We forecast a 10-20 Bcf withdrawal next week, compared to 2012’s 6 Bcf injection and the 5-year average of a 14 Bcf injection. Over the last month, the weather adjusted S/D balance has been ~3.7 Bcfd undersupplied vs. the 5-year average and ~2.4 Bcfd undersupplied vs. last year. We expect storage to enter next winter at 3.6 Tcf on November 1st (below the 5 year average of 3.75 Tcf).
E&Ps discounting long term prices of $4.25/Mcf. This compares to the 2013 & long-dated (2017) futures curves of $3.88/MMBtu & $4.52/MMBtu. Our top E&P picks are: APC, MRO, NBL and CLR.
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