Taken out od Cannacord's daily report... The only drawback with CBS is the consolidation.. In my twenty years, I have never seen a stock go up with a consolidation. Hope it does not go thru..
Natural Gas Prices Rebounding Nicely
Current natural gas prices have dramatically improved from this time last year when the Nymex March delivery contract at Henry Hub closed at a 52-week low of US$1.628/mmbtu, a 57% annual improvement. Prices are also vastly improved today over early January prices, a 17.4% or US$0.38/mmbtu increase, signaling either a larger demand complex than expected or a smaller supply complex than expected, or both. Additionally, Canadian gas basis differentials are markedly improved than previously experienced. Today, basis differentials are US$0.27/mmbtu versus over US$1.00 in early 1998; Canadian producers are more than happy in any event-these are the facts.
Larger Than Expected Storage Draw Downs
Two months ago, could anybody have believed the level of storage draw-downs that we have witnessed so far this winter-given another warm winter? The fact is, storage draw-downs are way beyond what anybody would have believed two months ago. The American Gas Association (AGA) reported on Wednesday that storage withdrawals were 158 bcf for the week ended 02/11, versus the five-year average storage withdrawal of 105 bcf. The magic number for the end of March is (or bottom storage figure is) 900 bcf for the US (note: the above graph shows total North American storage). If the US continues withdrawing gas at 150 bcf/week, storage in the US will be at critical levels i.e., below 900 bcf) within the next two weeks.
Strong Demand Despite Another Warm Winter
The bottom line with gas today is this: warm winter not withstanding, storage levels are being drawn down quickly-but why? Our view is that we believe US and Canadian gas productivity (as partially evidenced by Nova gas receipts) to be, at best, flat despite increased gas drilling activity both in the US and in Canada. Also, base-load demand is increasing due to fuel switching, plus environmental reasons. The ultimate conclusion is that wellhead productivity is decreasing at an increasing rate, and is not being offset by new gas wells drilled. Our prediction is this: natural gas will be in short supply this year and possibly next) and prices will reflect that, perhaps averaging US$2.50 to $2.80/mmbtu this year-you have to love gas right now. |
