NATURAL GAS INVENTORY (Week Ended 7/20/12)

Current: 3,189 Bcf
Actual Injection/(Withdrawal): 26 Bcf
Economist Average Estimate: 26 Bcf
Previous: 3,163 Bcf

Click here for the chart with five year averages.


*Loss Of Free Carbon Permits Make Centrica Stations Unprofitable – Bloomberg

The loss of free-of-charge European Union carbon permits next year will make an unspecified number of Centrica Plc (CNA)’s U.K. natural gas power stations unprofitable, according to the utility. “In power generation, conditions remain difficult for our gas-fired power stations, and will worsen following the loss of carbon allowances from 2013, which in the current market conditions will render much of the U.K. gas-fired generation fleet unprofitable,” Centrica said today in a statement distributed by Business Wire. The EU will from 2013 stop granting carbon to most power utilities, which have enjoyed mostly free-of-charge permits since the program started in 2005. The bloc will instead sell the allowances. – Read More

*Governor Corbett Signs Executive Order Requiring DEP to Implement Permit Decision Guarantee Program – Sacramento Bee

Governor Tom Corbett today issued Executive Order EO2012-11, which requires the Department of Environmental Protection to immediately begin assessing how best to make timely permitting decisions. The order establishes a Permit Guarantee Program, in which DEP will strive to make permitting decisions within established processing times for complete and technically adequate applications. “One of the biggest complaints I have received over and over again is the time it takes for businesses, non-profit organizations and local governments to work through the permitting process,” Corbett said. “I promised to correct this, and today we are setting the wheels in motion to deliver on that promise. At the same time, DEP will continue its longstanding mission to protect our environment.” – Read More

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*Rifts Emerge Amid ‘Frac Sand’ Rush In Wisconsin – NPR

Western Wisconsin counties bordering the Mississippi River have a unique geography: steep bluffs with layers and layers of silica sand. The sand is extremely valuable because it’s strong enough to prop open underground veins in shale fields so oil and natural gas can be released. It’s called “frac sand,” and Wisconsin appears to have more of it than any other state. But the hills are private property, so sand mining companies have to negotiate with local farmers — not all of whom are on board. – Read More

*Businesses, workers feel lull of natural gas glut – Shreveport Times

The pace of things is a little slower in Mansfield these days. The drive across town feels a little shorter, the line at the gas station takes a little less time and the parking lots are less crowded every day. “It’s really been a tremendous change since February,” said Shelby Spurlock, co-owner of Café 171 in Mansfield. “It’s gotten to the point where we wonder if we can keep the doors open or not.” Café 171 opened in September 2010 when Spurlock and her business partner Rebecca McDaniel started serving country cooking aimed at the droves of oil and natural gas workers meeting the booming demand on the Haynesville Shale. And for almost two years that eatery just inside the DeSoto Parish city’s limits had a house packed with roughnecks, surveyors, supervisors and anyone else working the nearby rigs. – Read More

*Gazprom questions U.S. shale gas boom – UPI

Long-term prospects for the shale natural gas sector in the United States aren’t very encouraging, Russian natural gas company Gazprom said. The United States sits on some of the largest deposits of shale natural gas in the world. T. Boone Pickens, a Texas oil magnate, has said abundant gas reserves in the United States make the country the “Saudi Arabia of natural gas.” Coaxing natural gas out of shale deposits to meet that demand, however, is controversial. Critics say chemicals used in hydraulic fracturing fluid could reach water supplies. Advocates said there’s little risk if the process is done correctly. – Read More

*Gas Futures Hit New 2012 High – Wall Street Journal

Natural-gas prices rose to the highest settlement in seven months, with forecasts of extreme heat supporting hopes that demand for gas-powered electricity will stay strong. Natural gas for August delivery on the New York Mercantile Exchange settled seven cents higher, or 2.3%, at $3.187 a million British thermal units, the highest settlement price since Dec. 13. Forecasts of above-normal temperatures in the next two weeks were mostly unchanged Tuesday, with private forecaster MDA EarthSat expecting continued heat across the Eastern and Central U.S. – Read More

*Eagle Ford crude fills the gap for natural gas slump – Houston Chronicle

Low natural gas prices have slowed drilling in shale plays where gas is predominant because the wells aren’t bringing in a decent return. But no one is sounding an alarm that the boom in the Eagle Ford Shale of South Texas is soon to bust. In fact, drilling activity in the Eagle Ford Shale is intensifying because it’s blessed with oil. “With gas prices falling, many, many companies are rebalancing their portfolios and going to oil,” said Stephen Trammel, senior manager of industry affairs at consulting firm IHS/CERA. The fallen price of natural gas has squeezed profits for many drillers. It closed Friday at $3.081 per million British thermal units after reaching a high of $4.58 as recently as July 21, 2011. By contrast, crude oil hit a two-month high Thursday at $92.66 a barrel. – Read More

*Encana posts $1.48 billion loss on falling natural gas prices – Toronto Star

Encana Corp. says it lost US$1.48 billion in the second quarter as it booked charges related to the decline of natural gas prices, and warned it could face additional impairment charges due to the market. The Calgary-based company, which reports in U.S dollars, says the $1.7 billion after-tax charge pulled down the quarterly results, which compared to a profit of $383 million a year earlier. Operating earnings were $198 million, or 27 cents per share. Analysts polled by Thomson Reuters were expecting Encana to earn 18 cents per share on average and bring in revenues of $1.62 billion. – Read More


*Cabot Issues Statement On EPA Data And Decision – Cabot News Release

Cabot Oil & Gas Corporation (NYSE: COG) today announced that the US Environmental Protection Agency (EPA) has determined, “that there are not levels of contaminants present that would require additional action by the Agency.” This statement, from their release, is the result of data from a second, confirmatory set of water samples from its testing in Dimock, PA. At the same time, the EPA also announced that it would cease deliveries to residents currently receiving water from the EPA, because the agency, “determined that it is no longer necessary to provide residents with alternative water.” As with the three previous sets of water samples compiled by the EPA at private drinking water wells in Dimock, PA, the data released today once again confirms the EPA and Department of Environmental Protection (DEP) findings that levels of contaminants found do not possess a threat to human health and the environment. These findings are consistent with thousands of pages of water quality data previously accumulated by state and local authorities and by Cabot Oil & Gas. As with the other findings, the EPA did not indicate that those contaminants that were detected bore any relationship to oil and gas development in the Dimock area. – Read More


*CLSA – (7.26.12)

The dramatic rise in the price of natural gas from under $2/MMBtu in late April to $3.05/MMBtu currently is a welcome confirmation of the immutable laws of supply and demand. However, we hope it won’t turn into a case of “too fast, too soon.” The issue is whether the price spike encourages power generators to switch back to coal, thereby reducing natural-gas demand and causing inventories to build at a much faster rate. The result could be overstuffed inventories this fall and a second collapse in the price of natural gas. The nat-gas market has made tremendous strides in rebalancing itself over the past 3+ months. It would be a shame to see it shoot itself in the foot now. That said, we continue to favour gas-levered names on the view that pricing in 2013, when we expect gas to average $4/MMBtu, is likely to be substantially better than this year and that share prices are generally discounting only $3.50/MMBtu.

Handicapping inventories

If inventories were to grow at the five-year average rate from this point forward, they would peak at a record 4,175 Bcf in early November. That’s 325 Bcf above the current record of 3,850 Bcf, which was set last year. The impact on the price of natural gas would be substantial and could possibly continue into 2013. Going back to the start of April of this year, inventory injections over the past 15 weeks have been on average 30 Bcf below the five-year average. The result has been that the storage overhang has been cut almost in half from 913 Bcf to 470 Bcf (Figure 10). The next 15 builds need to remain 20 Bcf below the five-year average in order for inventories to peak where they did last year. If that happens, we think our relatively bullish outlook for 2013 has a good chance of coming to pass.

The switching point

In our view, the decline in the natural-gas rig count is not likely to have a material impact on production until early 2013. The market needs coal-to-gas switching to stay switched to gas in order to unwind the overhang. We would put power-related natural-gas demand about 4.5 Bcf/d ahead of demand during the same period last year. Assuming normalized temperatures, power generation need only maintain 3 Bcf/d of incremental demand in order for inventories to peak at 3,850 Bcf. The Jan-12 was the last NYMEX contract to close above $3.00/MMbtu ($3.06/MMBtu); $3/MMBtu is a rough benchmark that delineates the switching point between coal and gas. In January, power-related demand was 3.5 Bcf/d ahead of 2011. However, the market then didn’t have to contend with bursting coal inventories and the summer-time need to run more coal as baseload.
This could get very interesting.

15 estimates range from 20 Bcf to 35 Bcf

The median consensus estimate is a 26 Bcf injection. The five-year average change for this time of year is a 61 Bcf injection. Last year, inventories increased 48 Bcf. Last week, inventories increased 28 Bcf versus the consensus estimate of a 32 Bcf injection. There were 93 CDDs (cooling degree days) during the week ending 20 July compared to the five-year average of 80 CDDs, last year’s 95 CDDs and the prior week’s 92 CDDs.

*Wells Fargo Securities (7.26.12)

EOG to Back Away from Marcellus JV with NFG. National Fuel announced on Wednesday afternoon (7/25) that EOG had advised the company that it does not expect to meet the minimum drilling requirements this year under a joint venture agreement. Seneca (NFG) and EOG agreed in 2006 to form a joint venture that would allow EOG the right to earn into a 50% interest in 200,000 acres in the Marcellus. Up to this point, EOG has earned into a 50% interest in 34,000 gross acres. The way we understand it, if EOG does not meet the drilling requirements, the company would forfeit the opportunity to earn into an additional 166,000 gross acres. At year end, EOG claimed 200,000 net acres in the play although the company has maintained for some time that only minimal capital would be spent in dry gas plays such as the Marcellus in order to hold acreage. NFG lowered capex and production guidance on the news although we are not sure if EOG has already incorporated lowered activity into their capital budget. EOG drilled 18 net wells in 2011 and 15 net wells in 2010 within the AMI. At that rate, a halt in drilling/completions could save $50mm or so. Seneca had also mentioned earlier this year that they would consider not participating in additional EOG drilled wells in 2012 and 2013. Given earn-in capital commitments and EOG’s large Barnett, Haynesville, and Horn River gas assets, we don’t think the loss of additional gas acreage in PA is likely to cause much consternation among investors.

*UBS Investment Research (7.24.12)

Forecasting a 20-30 Bcf injection to be reported this week. We expect the EIA to report a 20-30 Bcf injection, below both 2011’s 43 Bcf injection and the 5-year average of a 63 Bcf injection. We estimate inventories increased to 3,188 Bcf, narrowing the surplus vs. 2011 and the 5-year average for the 13th consecutive week to 474 Bcf and 445 Bcf, respectively.

Weather cooler last week than the year-ago but warmer than the 5-yr avg. Last week, weather 4% than the year-ago comparable week but 16% warmer than the 5-year average. Since May, weather has been 3% cooler than last year but 9% warmer than the 5-year average. Roughly 57% of CDDs remain ahead of us.

Forecasting storage to peak this Fall at 3.95 Tcf. We estimate the weather-adjusted S/D balance tightened 1.5 Bcfd WoW for the week ending 7/13. We estimate the weather adjusted S/D balance has been ~2.2 Bcfd undersupplied vs. the 5-year average and ~3.5 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 3.95 Tcf on October 31 (~0.3 Tcf above the 5 year average).

E&Ps are discounting $4.70/Mcf long-term, normalized natural gas prices. This compares to the 2012 & long-dated (2016) futures curves of $2.80/MMBtu and $4.36/MMBtu. Our top E&P picks are: APC, OXY, NBL and MRO.

*Howard Weil – (7.23.12)

Quick Take: We are marking to market the 2Q12 natural gas price and adjusting our commodity price assumptions for 3Q12 and 4Q12. While the combination of strong production and mild winter weather hampered natural gas prices during the first quarter of the year, warmer-than-normal weather, increased demand from coal to gas switching and low inventory builds provide a more encouraging outlook for the remainder of the year. Natural gas prices have risen 59% from the low of $1.84/Mcf registered in late April. While storage levels do remain elevated and are a source of concern, the magnitude has dropped significantly over the past few months, prompting an increase to our near-term price deck. In response, we are increasing our 3Q and 4Q 2012 natural gas price estimates from $2.25/Mcf and $2.75/Mcf, to $2.75/Mcf and $3.00/Mcf, respectively. Our 2013, 2014 and 2015 estimates remain unchanged, as does our general thesis on natural gas.

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