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Gold/Mining/Energy : Oil & Gas Exploration & Production Co.'s
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To: Ed Ajootian who wrote (13)1/8/2003 8:34:46 PM
From: Ed Ajootian  Read Replies (2) of 112
 
Natural gas storage levels have gone from 400 bcf above 5-year averages to about 100 bcf less than 5-year averages since mid-year ’02.
The swing in storage levels has been even more dramatic compared to last year – storage has swung from a 700-800 bcf overhang to a 600
bcf shortfall vs. year-ago levels (but we need to remember that a fall in gas prices from $10 to less than $2 in 2001 led to storage
performance that was quite unusual during 2001).
Natural gas storage withdrawal rates over the past month, after adjusting for the weather, have averaged 5 bcfpd more than historic
averages. This is in marked contrast to the experience over the April-November period in 2002 when “weather-normalized” withdrawal rates
were roughly equal to 5-year historic averages. We believe that there are 2 possible explanations:
(a) our model assumptions understate heating demand, or
(b) the market has tightened over the past month as a result of falling supply or increased gas usage (e.g. as a result of increased
economic activity).
We are betting that we have underestimated heating demand by a fair amount but we don’t believe that increased heating demand is the
whole story. Production continues to slide along with imports from Canada. The only bright spot on the supply side seems to be rising
imports of liquefied natural gas (LNG).
If we extrapolate recent storage trends we would end March with about 700 bcf in storage (assuming normal weather over the remainder of
winter). While this is at the low end of the 738-1,403 bcf 5-year historic range it is not a catastrophe for the gas markets. However, the 400
bcf implied shortfall versus 5-year averages would set us up for strong prices this summer.

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From today's Lehman Bros. report. Music to my ears!
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