trading, thanks much for your thoughts. I completely agree that the key is looking at how the supply/demand balance is looking ex-weather. The data in just a handful of week's storage reports is very "noisy" IMO and can't really tell us much reliable info. I believe a reasonable length of time to iron out all this noise would be 3 months. Per Robry, the net storage withdrawals over the last 3 months have been 1,251 BCF vs. the net baseline scores of 1,188 for the same period (his "baseline scores" are indications of what the number would be if weather were normal for that week). This seems to contradict your belief that supply is clearly overtaking demand.
There are a lot of moving parts to this picture, so its a mistake to focus too much on a single part in forming any conclusions. For example, US domestic supply may continue to rise at a rate of 4 BCFD next year (although I presently believe this is unlikely, see next paragraph). But Canadian imports appear headed to drop further in '09, which would partially offset any increase in US domestic supply.
I believe US domestic supply is unlikely to increase at a 4 BCFD rate in '09, at least given the current rig count numbers. The gas-directed rig count peaked at 1,523 rigs in late August '07. Since August '06, for other than a few weeks, it has hovered within 50 rigs of 1,450. '07 saw a Y-O-Y increase in gas-directed rigs, so that supports the increase in production in '07 vs. '06. But so far this year the rig count has been about flat Y-O-Y, so its unlikely that we will continue to see increases in production this year at the same rate as last year. There's still a long time to go for this year so maybe the rig counts will pick up and change this picture, let's see what happens.
Thanks very much for sharing the data on storage capacity in some of the other LNG importing countries. I always wondered what those #'s were. I would turn your logic on its head and use this same data against you. For example, given that UK only has 149 BCF of storage capacity, why would their natty futures prices for this summer be at US$12? This price level implies that, even with so little demand to fill storage there, they find it necessary to peg prices at a buck higher than the US.
Regarding the LNG picure, I believe its a mistake just to look at the supply side of the equation, in light of the fact that, for every 1 BCFD of new supply that is expected to come online in the next few years, there is expected to be about 3 BCFD of additional gasification capacity put online. |
