The Department of Energy and consensus Wall Street estimates for 2010 U.S. natural gas supply growth are “not just wrong but way wrong,” a trio of Raymond James & Associates Inc. energy analysts said Monday.
In their Energy Stat of the Week, J. Marshall Adkins, John Freeman and Cory Garcia said the “evidence is pretty clear” that the government and consensus estimates on U.S. gas supply are off.
“Current consensus expectations for domestic gas supply growth this summer call for less than 1 Bcf/day of year-over-year (y/y) growth,” said Adkins and his colleagues. “In contrast, we now believe that y/y gas supply growth will be closer to 4 Bcf/d this summer.” By connecting the dots, they wrote, the “massive supply trends become pretty obvious.”
Pointing to the most recent Energy Information Administration (EIA)-914 trends from September 2009 through February, the analysts noted that “gas supply has grown about 0.5 Bcf/d each month since the September bottom. If we extrapolate this same 0.5 Bcf/d growth trend though the summer, the y/y EIA-914 gas supply figures would reach a whopping 6 Bcf/d by September.”
In a review of 1Q2010 public gas company data and company guidance, the Raymond James team said it supports a “very similar view” of the EIA-914 trends.
“While this gas supply outlook is obviously much more bearish than most realize, we would caution investors not to become overly bearish too quickly,” said the trio. “We are already seeing a very strong rebound in industrial gas demand and, if summer gas prices fall into the low $3 range (as we expect), growing demand from increased coal to gas switching may step up to offset much of this bearish supply data.”
In a separate analysis, Brad Smith of U.S. Energy Services Inc. wrote Monday that “absolute” storage levels are at record levels for this time of year (2.1 Tcf).
The EIA’s latest Short Term Energy Outlook, which was released last week, indicated that the supply and demand balance for April was “similar” to 2009, but dry gas production jumped 1.1 Bcf/d, partially offset by lower Canadian imports (minus .9 Bcf/d), Smith noted.
Despite higher industrial consumption, there’s lower residential demand for gas, he wrote.
“Looking forward, current production levels will likely overwhelm a near-term reduction in the y/y surplus to build end of season storage equal to or modestly beyond last year’s record (3.8 Tcf),” Smith said.
The Raymond James team noted that since gas output bottomed last September, it has grown about 0.5 Bcf/d each month since then.
“While the September 2009 data point appears artificially low (likely due to producers shutting in as gas prices collapsed, it is clear that supply is surging,” Adkins’ team said. “More importantly, the robust supply growth in late 2009 was driven by a fairly anemic average rig count of approximately 700…
“Given that the domestic natural gas rig count now sits above 950, it would be logical to assume that the growth in domestic supply actually accelerates faster than the 0.5 Bcf/d trend line…”
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