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Bill Costello
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I have moved to Westwood Holdings where I cover E & P, Oil Service, Utilities, and Refiners. I also co manage the small cap value fund.
  • Natural gas storage injection bearish 5 comments
    May 27, 2010 10:42 AM

    BULL RUN ENERGY RESEARCH

    60 STATE STREET, STE. 746

    BOSTON, MA  02110

                         CONTACT INFORMATION

               

                WILLIAM E. COSTELLO, CFA

                      BULLRUNENERGYRESEARCH@COMCAST.NET

                      617.878-2030

    May 27,2010

     

    Natural Gas Storage

    For the week ending May 21, 2010

     

     

    Energy Information Administration weekly storage report.

     

    • The EIA reported a 104 Bcf injection into storage vs. consensus estimates of 101.
    • This was above both our 99 estimates and street numbers.
    • This puts us at 2,269 Bcf (2.3 Tcf) in storage vs. 2,198 last year and the five-year average of 1,951 bcf.
    • This injection was between last year (106) and above the five year average (94)
    • We are now 71 Bcf above last year and 318 above the five-year average.

     

    SUMMARY:

     

    We view this injection as bearish to the natural gas market and the gas-weighted equities. Working gas in storage is still way above the five-year historical range and above last year. Between now and November 1 we typically inject +/- 1,700 Bcf so we seem to be on track to enter next year’s winter with just about 4,000 Bcf (4.0 Tcf) in storage. This would be an all time high. The numbers we look at indicate we are over supplied by about 1.5 Bcf per day and either supply must slow or demand grows to alleviate the problem. We have seen some signs of slowing activity but the rig count hasn’t shown any meaningful signs of turning down yet.

     

     



    Disclosure: No stocks mentioned
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Comments (5)
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  • Jeep
    , contributor
    Comments (1875) | Send Message
     
    I keep looking at the numbers and find that it is close to impossible to be bulling on natural gas right now. I think the price is going to continue to head down, and the only things that could really prop it up are hurricanes in the GOM or a finding that the projected decline curves of shale wells are far too optimistic.
    28 May 2010, 11:26 AM Reply Like
  • Bill Costello
    , contributor
    Comments (1294) | Send Message
     
    Author’s reply » I know I agree but it is funny so many people I speak with want to be bullish. They feel oil is too high, we have too much supply, that it is a very crowded trade to like oil names, and the stocks are expensive. I try to point out they aren't that expensive and really what is expensive or cheap at the end of the day it comes down in some part to commodity price. When I rolled out CRZO at $24 it was 4 X CF and 6.9 X EV/EBITDA. When I changed my price forecasts it was 3.3 X CF and 6.5 X EV/EBITDA. So yes it was cheaper but the stock was down 33% to $16.
    28 May 2010, 11:48 AM Reply Like
  • Jeep
    , contributor
    Comments (1875) | Send Message
     
    I can't blame them for thinking that way. The oil/natural gas price ratio is all out of sorts, and since some substitution is possible you would think that there would be some upward pressure on gas and a downward pressure on oil.

     

    It hasn't happened, though (despite some apparent substitution) which has led me to believe that oil's one superior quality--its ease of transport-- means oil really is worth today a substantial premium to a BTU equivalent of natural gas.

     

    Or, to put it another way, oil's use as a transportation fuel very well might be increasing. If that is correct, it potentially means that demand for gasoline and diesel is growing in Asia at higher rates than ordinarily thought.

     

    Unless it's all a bubble--but I don't think that is the case,
    28 May 2010, 12:55 PM Reply Like
  • Bill Costello
    , contributor
    Comments (1294) | Send Message
     
    Author’s reply » The March 2010 EIA 914 data just hit and production rose .8 bcf a day. I really think the gas market is ugly La was +.2 and Tx +.4 so all that talk (Groppe) about Tx and Barnett rolling over may not take into account there is a Haynesville on their side and while everyone loves the Eagle Ford and the high liquid content oh yah gas comes out as well.
    28 May 2010, 01:02 PM Reply Like
  • Jeep
    , contributor
    Comments (1875) | Send Message
     
    Yep. People forget associated gas, and it comes out of every single one of the new oil and liquids plays. Oxy's gas condensate discovery in California produces a lot of nice condensate--but it produces even more gas.
    28 May 2010, 01:14 PM Reply Like
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