tommy-
Along the lines of your concerns is this piece from MS:
Here's MS' version of the story:
Supply Fundamentals Supportive
Quarter-to-date results from our North American natural
gas survey show a continuation of the difficult production
trend of the past several quarters, and continue to lend
support to the structural argument for natural gas. 53% of
our sample group (50% volume-weighted) has reported,
with results showing North American natural gas
production having declined 2.9% sequentially and 8.4%
year/year (Exhibit 10). Our expectations for the
comparable group were for declines of 1.9% and 7.5%,
respectively. Results have been adjusted for acquisitions
and/or divestitures, where applicable.
While the entire industry faces an accelerating decline
curve, our survey results point to an especially difficult
domestic upstream environment for the Integrateds
(Exhibit 8). This ties into Doug Terreson's (Morgan
Stanley Integrated Oils Analyst) view that additional
divestitures of non-core properties during the upcoming
quarters are likely. As a result, independent E&Ps best positioned
given their financial capacity will likely assume
their familiar role of buyer. Case in point - Apache's
recent acquisition of assets from BP.
Focus Now on Demand
The current high price environment is doing damage to gas
consumers, in our view, and we expect signs of demand
destruction to emerge in the coming months, though we
have still not seen any material destruction to-date.
But once again, we had high bid week pricing, and
natural gas prices today are sufficient to support ~2-3 Bc/d of demand erosion, in our view.
As such, we question whether destruction is being
disguised, especially given industrial hedging ahead of the
winter and the non-linear demand pattern from extreme
weather. Absent a demand response, we project end of
winter storage between 700-800 Bcf (Exhibit 9), well
below the norm of 1,050-1,100 Bcf. |
