Excerpt: The EIA reported a 2 Bcf fill for the week ended November 27 compared to last year's 64 Bcf draw, the 43 Bcf 5-year average draw and the 6 Bcf consensus draw (range: 22 Bcf draw to 6 Bcf fill). This week’s fill marks the fourth consecutive week of injections since the start of the withdrawal season. Heating Degree Days came in at 128, down 29% versus last year and 19% below normal. Storage levels now stand at 3,837 Bcf, which is 487 Bcf (14.5%) above the 5- year average and 470 Bcf (14.0%) above last year. Despite fairly mild weather over the past four weeks, we believe the November storage injections suggest supply declines from the peak are more muted than many have expected. Regional storage data confirms this trend, as withdrawals have begun in the East region while Producing regions have seen persistent injections. Barring an exceptionally cold winter, we project storage is set to exit the withdrawal season near 1,800 Bcf, above the previous record of 1,695 Bcf in 2006.
2010 Curve Slips to ~$5.00 per MMBtu: Following today's report, the January contract is trading at $4.49 per MMBtu, down 13% wk/wk. Meanwhile the 2010 curve has fallen hard and is now trading at just $4.99 per MMBtu, down 11% wk/wk. Yesterday, the forward curve slid to a 52-week low when it closed at a $5.05 per MMBtu, the lowest since January 2005. Prices are now at $4.70 per MMBtu for H1’10 and $5.39 per MMBtu for H2'10. The forward curve has been sliding since Monday (11/30) when the EIA released bearish supply data showing a 2.2% sequential dip in Lower 48 production versus market expectations of over 3% declines. Although the September production data is clouded by storage-induced shut-ins and downtime at key facilities (Independence Hub and Boardwalk pipelines), the rising rig count since a mid- July trough likely points to more muted supply declines.
Shale-Focused Rig Count Climbs Back Toward '08 Peaks: In fact, the horizontal rig count has surged 45% (167 rigs) to 539 rigs in just under 6 months and is now back within 17% of September'08 peaks thanks to increasing focus in unconventional gas basins. Likewise, the shale gas rig count is now down just 7% from October'08 levels and is actually up 52% on an IP rate-weighted basis. The Haynesville rig count has led the charge and impressively reached the century mark last week, more than tripling from just 31 rigs in October'08. With drilling activity in higher impact basins edging back towards '08 peak levels and producers seeing increasing field-level efficiency gains, supply appears set to stabilize and at shallower levels than many market onlookers had previously anticipated. We have been modeling peak to trough declines at less than 2 Bcf/d (below more bullish 6-7 Bcf/d Street views), and see increasing downside risk to our $5.75 per MMBtu 2010 outlook.
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