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: Up, and to the Right – Moving in the Right Direction.


Current: 3,429 Bcf
Actual Injection/(Withdrawal): 27 Bcf
Economist Average Estimate: 27 Bcf
Previous: 3,402 Bcf

Click here for the chart with five year averages.


*Mexico’s Pemex says natural gas imports could end by 2017 – Reuters

An official with state oil company Pemex predicted on Wednesday that Mexico would be able to end natural gas imports by 2017, but some analysts found the prospect doubtful. “It is totally feasible,” said Carlos Morales, director of Pemex Exploration and Production, after a speech at the annual Mexican Petroleum Congress, a four-day gathering of foreign and national industry executives. Morales said Pemex does not expect current low natural gas prices in North America to prevail for long and, without directly saying so, he indicated that rising prices would lead to increased Mexican gas production. “Demand for natural gas is also increasing in the United States, and that’s going to bring prices back to more attractive levels for producers,” Morales said. – Read More

*Canada Natural Gas Rises Amid Speculation of Lower Supply Gain – Bloomberg

Canadian natural gas rose on speculation that U.S. supplies will show a below-average gain last week because of Gulf of Mexico production shutdowns in the wake of Hurricane Isaac. October gas in Alberta climbed 3.2 percent. The Energy Department may report tomorrow that U.S. stockpiles expanded by 26 billion cubic feet, below the five-year average gain of 72 billion, according to analyst estimates compiled by Bloomberg. As much as 73 percent of Gulf gas output was shut because of Isaac, the Bureau of Safety and Environmental Enforcement said. Alberta gas for October delivery gained 7.75 cents to C$2.50 per gigajoule ($2.43 per million British thermal units) as of 4:15 p.m. New York time on NGX, a Canadian Internet market. Gas traded on the exchange is shipped to users in Canada and the U.S. and priced on TransCanada Corp. (TRP)’s Alberta system. – Read More

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*Chesapeake to Sell $6.9 Billion of Assets – Bloomberg

Chesapeake Energy Corp. (CHK) agreed to sell oil and natural-gas assets for $6.9 billion in a series of transactions that will narrow a cash-flow shortfall threatening to crimp the company’s drilling and production goals. Royal Dutch Shell Plc (RDSA), Chevron Corp. (CVX) and EnerVest Ltd. will buy oil and gas fields in the Permian Basin of Texas and New Mexico for $3.3 billion, Chesapeake said in a statement today. Closely held Global Infrastructure Partners will acquire most of Chesapeake’s pipeline and processing assets for $2.7 billion. The Permian Basin holdings were the most valuable of several assets Chesapeake Chief Executive Officer Aubrey McClendon put up for sale this year to raise cash to avoid a credit-rating downgrade and maintain debt covenants amid slumping gas prices. The Permian sales announced today fell short of a $5 billion target set by McClendon in a March interview, because some acreage in the basin failed to attract bidders. – Read More

*Lack of gas costs Woodside – The West Australian

Woodside Petroleum’s failure to discover enough gas for a second train at its Pluto operation could add $1 billion to the flagship asset’s expansion cost because of the need to build extra LNG tanks. The fallout from the exploration failure, which has instead forced the company to focus on striking a supply deal with rivals owning gas fields in the Carnarvon Basin, comes as Woodside looks for savings of its expansion plan by chopping the new train size from 4.3 million tonnes a year to 3mtpa. – Read More

*Apache holds out hope for Kenya – UPI

Finding no oil but natural gas at an offshore Kenya exploration well, Apache Corp. said the zone deserves further evaluation from its partners. Apache said it encountered around 170 feet of natural gas across three zones during drilling offshore at the Mbawa-1 well. “Although no oil was encountered, the presence of hydrocarbons warrants further evaluation,” the company said in a statement. British energy company Tullow, one of Apache’s partners, expressed similar sentiments about the region this week. The company said it drilled to 10,338 feet to examine a secondary target but no hydrocarbons were found. – Read More

*Enterprise Begins Operation of Second Train at Yoakum Natural Gas Processing Facility in the Eagle Ford Shale – Enterprise Product Partners

Enterprise Products Partners L.P. (NYSE:EPD) today announced the start-up of the second 300 million cubic feet per day train at the partnership’s Yoakum cryogenic natural gas processing plant in Lavaca County, Texas. With the additional train, nameplate capacity increases to 600 MMcf/d and the facility is capable of extracting approximately 74,000 barrels per day of natural gas liquids. Enterprise is also on schedule to bring the third train at Yoakum into service in the first quarter of 2013, at which time total capacity at the complex will increase to 900 MMcf/d and 111,000 BPD of NGLs.  “Like the Eagle Ford Shale play itself, our Yoakum natural gas facility continues to exceed expectations and provide Enterprise with new growth opportunities,” said A.J. “Jim” Teague, executive vice president and chief operating officer of Enterprise’s general partner. “Based on the operating results we’ve seen from the first train which began service in May 2012, we expect the second and third trains to perform above their original design capacity, giving us the confidence to pursue additional processing commitments for all three plants.” – Read More

*Tullow makes gas find offshore Kenya – UPI

British energy explorer Tullow Oil said it found natural gas in the shallow waters off the Kenyan coast, its first such discovery. Tullow said it discovered a natural gas pay measuring about 170 feet thick in shallow waters of the Mbawa-1 exploration well off the coast of Kenya. Angus McCoss, exploration director for Tullow, said the find was his company’s first hydrocarbon discovery offshore Kenya. “A gas discovery on prognosis in the shallowest objective at Mbawa-1 is an encouraging start to our East African transform margin exploration campaign,” he said in a statement. – Read More

*EU: Anti-Dumping Probe Into China Solar Panels – Associated Press

The European Union launched an anti-dumping probe into Chinese solar panels on Thursday after an industry association claimed the products were being exported for less than it costs to make them. The complaint, filed in July by a group of 25 producers of solar gear, including companies from Germany, Italy and Spain, is the biggest-ever anti-dumping claim filed with the EU. China, the world’s largest producer of solar panels, accounts for about two-thirds of global production. It exported solar panels and associated key components worth around €21 billion ($26.5 billion) to the 27-nation bloc in 2011, the EU said in a statement. Rivals accuse Chinese companies of selling their products to other markets at a price less than what they charge in China, operating at a loss in order to put competitors out of business. – 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. Mr. Hirose’s comments come the week before the administration of Prime Minister Yoshihiko Noda is expected to announce a long-awaited decision on Japan’s future energy mix, following last year’s devastating accident at the Fukushima Daiichi nuclear-power plant. Japanese utilities and many big business have come out strongly in support of maintaining the country’s nuclear fleet, which supplied around 30% of the country’s electricity before the accident. – Read More

*Reclusive Turkmenistan ups 2030 natural gas target – Reuters

Turkmenistan, holder of the world’s fourth-largest natural gas reserves, said on Thursday it would increase annual output of the fuel to 250 billion cubic metres (bcm) by 2030, upping an earlier target of 230 bcm. The ex-Soviet Central Asian nation, where current potential annual gas output is estimated at just 75 bcm, is hoping to expand its industry massively by tapping unexplored fields and building two new U.S.-backed pipelines. Its reclusive government, which rarely releases macroeconomic and energy data, has already begun diversifying gas export routes, particularly to China and neighbouring Iran.- Read More


*Wells Fargo Equity Research (9.13.12)

APA/EOG: Official Projects Kitimat First Liquefaction Facility Operating in Western Canada. 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%.

Edison International. Yesterday we gained a little more insight into the potential return to service of SONGS Unit 2. Recall, Unit 2 has been offline since entering a refueling outage in late 2011. Unit 2 is widely expected to return to service before Unit 3 which experienced a higher degree of steam generator tube wear. In testimony during a Senate Environment and Public Works Committee hearing, new NRC Chairman Allison Macfarlane implied Unit 2 will likely not be returned to service in 2012. EIX is expected to submit a letter to the NRC during the first week in October regarding the root cause of the problems at SONGS and then it will be on the order of months after that point before it is allowed to return to service (maybe Q1 2013???). We view this as a modest negative as we (and most investors) had believed Unit 2 would return to service before year-end. While we continue to believe Unit 2 will eventually return to service, this development increases the risk that SoCalEd may be ordered by the CPUC to remove the asset from rate base and presents further cost recovery timing uncertainty in relation to the original steam generator repair costs. We remain mindful of the regulatory risks posed by the SONGS issue but continue to consider the long-term economic implications to EIX shareholders to be marginal. We also note that a proposed decision in SoCalEd’s pending rate case is anticipated by the end of September and could indicate the CPUC’s potential regulatory treatment of the downed SONGS units. We reiterate our Outperform rating.

*Baird Equity Research – Energy (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.

*Howard Weil (9.13.12)

TOT $52.79: LNG Export Agreement from Sabine Pass with Kogas

Quick Take: TOT has signed an agreement with Kogas for 0.7mm metric tons per year (~93MMcf/d) of LNG from Sabine Pass on the US Gulf Coast for a 20-year timeframe. Volumes will begin in ’17 from train 3 of the liquefaction facility. This is an interesting movement on the macro gas front as the majors now appear to have a more constructive view of LNG exports from the US actually taking place.

*Tudor Pickering Holt & Co. (9.13.12)

Gassy E&P stock thoughts (E&P $564, natural gas $3.05) – Ninja like move by gas stocks, quietly ripping 12% in past two weeks.  Move mirrors spot pricing (+16%).  Forward curve ~flat at $3.53/mcf indicates momentum trade winning the day.  Gassy names aren’t cheap at 8.4x ’13 EV/EBITDA and average only 13% upside to 3P NAV (many discounting $5/mcf).  Deeper value still the play (WPX, SWN and QEP) but getting harder to press higher.  With gas back at $3, bias near term is for spot price to move lower…which likely fades stocks as well.  Too early to try and trade winter optionality.

*Bank of America Merrill Lynch (9.11.12)

Second round of bidding rolled out

To speed up unconventional gas development, China’s Ministry of Land and Resources (MoLR) recently rolled out the second round of bidding for shale gas drilling rights with an announcement posted on its website. This round includes 20 blocks (located in eight provinces) with total land mass of 20,000sq km (double the size of the first round). The auction will be held on 25 October.

Private capital, Chinese-foreign JVs eligible to participate

In line with our expectations, private enterprises and Chinese-foreign JVs (with Chinese capital being the controlling shareholder) will be eligible to participate in the auction. The individual size of each block is small, making it easier for private sector participation. There are no blocks in Sichuan province (the richest shale gas resource region in China), as PetroChina and Sinopec own the majority of the conventional oil/gas blocks in the area. Utility firms could be potential bidders aiming to secure additional gas sources for vertical integration, in our view.

Expect rapid production after auction

The drilling rights awarded will only be valid for three years as opposed to 10 years for conventional drilling blocks, indicating rights will be withdrawn if no production is noted within three years. Plus, it was reported that an agreement has to be signed with the MoLR in which the winning enterprises promise production commencement within six months and drilling rights will be proportionately withdrawn (by the MoLR) or transferred to another operator if production is delayed within the three years. However, a bottleneck to achieving rapid production is the lag in technology, which largely depends on whether Chinese players can successfully obtain mature technology from their foreign counterparties.

Gas price reform could be accelerated

We expect the MoLR to speed up the opening up of the shale gas sector to the private sector, and this round of bidding might just mark the beginning of a massive shale-gas drilling boom.

We maintain our view that gas price reform is critical in developing unconventional shale-gas resources in China; we estimate gas prices will need to be higher than US$8.5/mmbtu for shale gas production to break even.

*Global Hunter Securities (9.11.12)

Summary: 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.

*UBS Investment Research (9.10.12)

Forecasting a 25-35 Bcf injection to be reported this week. We expect the EIA to report a 25-35 Bcf injection, below both 2011’s 87 Bcf injection and the 5-year average of a 67 Bcf injection. We estimate inventories increased to 3,432 Bcf, narrowing the surplus vs. 2011 and the 5-year average to 320 and 304 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.

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 8/31. 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 (~0.18 Tcf above the 5 year average).

E&Ps are discounting $4.50/Mcf long-term, normalized natural gas prices. This compares to the 2012 & long-dated (2016) futures curves of $2.68/MMBtu and $4.27/MMBtu. Our top E&P picks are: APC, NBL, EOG, OXY and MRO.

*Raymond James Equity Research (9.7.12)

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 3,402 Bcf currently in storage and at least 8 more weeks of injections, using last year’s total injections of 765 Bcf and assuming that we run at least 3.0 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 – $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 $2.85/mcf level currently; coincidentally this is slightly above the $2.75/Mcf threshold where we estimate it is cheaper to burn 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.

*Raymond James Equity Research (9.6.12)

It’s Official: Europe Launches Anti-Dumping Probe of China’s Solar Industry

Solar trade war opens another front. The European Commission – the executive branch of the European Union – has announced that it will formally investigate complaints that Chinese photovoltaic (PV) manufacturers have been exporting and selling modules below their cost to produce them, or “dumping.” As we discussed in our report from August 15, “Solar Rationalization: 30 U.S./EU Bankruptcies in 12 Months = 9% of Overcapacity,” plummeting module pricing has devastated the European PV manufacturing industry – see the table on page 2. EU ProSun, a group of European PV producers (those still in business, that is), led by Germany’s SolarWorld, filed their Brussels complaint in July – closely following the roadmap of their Washington strategy over the past year.

Nearly identical to U.S. complaint. EU ProSun’s complaint is near-identical to one filed with the U.S. Department of Commerce last October by a U.S. consortium, also led by SolarWorld. That complaint alleged (1) illegal dumping in the U.S. by Chinese PV manufacturers to gain market share, and (2) illegal subsidies by the Chinese government. The gambit was largely successful: in May, preliminary anti-dumping duties of 31% were imposed on Chinese PV producers, on top of 2-5% countervailing duties. The biggest difference in the EU investigation is the expectation that it will be limited to an anti-dumping case, without encompassing the subsidy issue. Additionally, the EU is expected to take considerably longer to investigate, with a preliminary finding next spring and any final tariffs probably not set until late 2013. As was the case in the U.S., however, any tariffs could be imposed retroactively.

Europe’s impact could overshadow U.S. ruling. Any tariff ruling by the EU would be inherently more impactful than the U.S. ruling, reflecting the much larger size of the European PV market. As shown below, we project that Europe will account for 36% of global PV demand in 2013, more than double the U.S. figure of 16% (though down sharply from the 2011 level of 74% due to demand declines in Germany, Italy and some other countries). Chinese PV producers have roughly 80% market share in the European market. Also, the EU may avoid a loophole in the U.S. ruling, which allows Chinese module makers who source cells from outside China (e.g., Taiwan) to avoid the tariffs. Most tier one producers, such as Suntech and Trina, have taken advantage of this loophole.

Possible retaliation by Beijing broadens trade war. The investigation obviously represents more bad news for Chinese PV manufacturers, who are already struggling with record-low margins amid severe overcapacity. Many of the tier one producers have already released statements noting that they will fully cooperate with the EU inquiry, though the Chinese government has hinted that it would consider retaliation. Beijing is currently threatening to impose steep tariffs on U.S. imported polysilicon, and it is indicating that any tangible action by the EU could bring similar retaliation, including polysilicon and (oddly enough) wine.

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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