Natgas Prices
Working gas in storage was 3,179 Bcf as July 1, 2016 versus a 5-year average of 2,580 Bcf for this time of year. In other words, the total working gas is 600 Bcf above the five-year average.
The average weekly injection for this time of year is 77 Bcf; however, the average since june has dropped about 50% to about 38 Bcf per week. If this continues at the same average through July, August, September, and October, we will inject 38 Bcf less per week for the next 12 weeks until the start of heating season. (12 X 38 = 456 Bcf less injection).
The 5-year average as of the start of heating season (Nov. 1st) has been about 3800 Bcf in storage. Working gas in storage right now is 3,179 Bcf or 620 Bcf less that the 5-year average going into heating season. This means that at the current rate, we will have 3,179 Bcf in storage plus another 456 Bcf. In other words, as it stands right now, we will enter the heating season with (3179 + 456 = 3635 Bcf). This is below our average storage level for the last 5 years by 165 Bcf assuming all else is equal. This ain't bad!
There are a few other consideration: (1) LNG exports will likely drag 50 Bcf between now and November, and (2) Less imports from Canada and more exports to Mexico will likely drag another 50 Bcf by November.
This brings us down to 3535 Bcf in storage by the start of the heating season. The 5-year average that we have in storage on March 15th of every year is 1600 Bcf, which means the average heating season draws out 3800 - 1600 = 2200 Bcf draw down.
So, assuming an average winter, we will have in storage 1355 Bcf by March 15th, 2017. The extreme lowest storage we have ever had over the last 5 years is 800 Bcf.
This is assuming production remains average going forward. On the other hand, if production is down due to nervousness on the part of producers with weakened balance sheets, lack of bank credit, hurricanes, or a shortage of tier 1 pad-optimized rigs, then we might touch the all time low of 800 Bcf in storage by March 15, 2017.
The other problem is a bitter cold winter with lots of blowing snow, ice storms, and freezing wind chill factors. Combine this with a drop in production and we could run slap out of natgas by the end of March 2017.
The way the advanced weather report looks right now, and drilling at a 50 year low, running out of natural gas is a 50/50 shot.
If we get close to running out (say 500 Bcf by March 15, 2017) we could very well get a spike in natgas prices to $15/mmBtu.
CHK could easily hit $20. As it is now, I see $10 by January 15, 2017 (more than a double only 6.5 months away).
Buy and hold till hell freezes over!
