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Monday, 11 April 2016
Natural Gas Rises as Investors Bet on a Bottom
LONG OVERDUE REVERSION TO MEAN
That should result in a return to higher gas prices. The price estimate based on comparative inventory (shown in red) is more bullish than EIA’s price forecast (shown in orange) but both indicate a substantial percentage increase in prices.
EIA forecasts $3.20 gas prices in January and February 2016, and $3.41 in December 2017. My forecast based on comparative inventories is about 15% higher overall than EIA’s but peak prices are 20-30% higher. It calls for winter prices in the $4-range for 2016 and 2017.
Natural gas prices should double over the next year.
Over-supply plus a warm 2015-2016 winter have resulted in low gas prices. That is about to change because supply is decreasing (Figure 1).
Total supply–dry gas production plus net imports–has been declining since October 2015* because gas production is flat, imports are decreasing and exports are increasing. Shale gas production has stopped growing and conventional gas has been declining for the past 15 years. As a result, the supply surplus that has existed since December 2014 is disappearing and will move into deficit by November 2016 according to data in the EIA March STEO (Short Term Energy Outlook) .
During the last supply deficit from December 2012 to November 2014, Henry Hub spot prices averaged $4.05 per mmBtu. Prices averaged $1.99 per mmBtu in the first quarter of 2016 so it is reasonable that prices may double during the next period of deficit.
EIA forecasts that gas prices will increase to $3.31 by the end of 2017 but that is overly conservative because it assumes an immediate and improbable return to production growth once the supply deficit and higher prices are established (Figure 1).
Production companies are in financial distress and are unlikely to return to gas drilling at the $2.75 price that EIA forecasts for November 2016. The oil-field service industry is in disarray and is probably unable to reassemble drilling and fracking crews and equipment in less than 6 to 12 months after demand resumes.
There are currently on 92 rigs drilling for gas. That is 150 rigs less than the previous record-low set in 1992 (Figure 2). Production cannot be maintained at this level despite unrealistic faith in drilling efficiency and spare capacity from uncompleted wells.
One of Libya’s rival governments has resigned, a step that helps efforts by a new, UN-brokered unity government to assert itself in the capital Tripoli despite opposition from some local militias. In a statement, the Tripoli-based National Salvation government said it would “cease duties” as executive authority, and therefore absolve itself of responsibility for the country’s fate. “We put the interests of the nation above anything else, and stress that the bloodshed stop and the nation be saved from division and fragmentation,” the statement read. Western nations view the new unity government as the best hope for ending Libya’s chaos and uniting all factions against an increasingly powerful Islamic State affiliate, which has seized the central city of Sirte. Another government, based in the eastern city of Tobruk, still opposes […]
The deputy coordinator of the Iranian Army’s Ground Forces General Amir-Ali Arasteh announced that his country will send “special forces from Brigade 65 and other units to Syria to work as advisers” and added that Iran may decide at some point to use special forces and snipers as military advisers in Iraq and Syria. So why is Iran “openly” admitting its involvement in Syria now? It is known that Tehran has mercenaries and militias working for it. These include Hezbollah terrorists and forces of the Revolutionary Guards’ units that fight in support of the criminal Bashar Al-Assad. However, Iran has always denied this and its role in Syria has been shamefully overlooked by western media. The Obama administration has also overlooked Tehran’s villainous role in supporting the criminal of Damascus, and before that its supporters in Iraq. So why is Iran publicly announcing its deployment of troops to Syria? […]
Iran ratcheted up its offense in the oil market after breaking a pricing tradition, signaling it’s seeking to win market share at a time when rival producers are trying to forge a deal on freezing output. State-run National Iranian Oil Co. will sell the Forozan Blend crude for May to Asia below the level offered by rival Saudi Aramco for Arab Medium, the third month the Persian Gulf state is giving the discount after setting it at a premium for almost seven years through February 2016, data compiled by Bloomberg show. NIOC will also sell the Iranian Light grade to Asian customers at 60 cents below Middle East benchmark prices, a company official said on Friday, asking not to be identified because of internal policy. While producers including Saudi Arabia, OPEC’s biggest member, and Russia are due to meet in Doha on April 17 to discuss a deal to […]
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