Thursday, December 3, 2015 -- Rigs At Post-Boom Low

Active rigs:

	12/3/2015	12/03/2014	12/03/2013	12/03/2012	12/03/2011
Active Rigs	63	189	193	182

RBN Energy: how increasing natural gas output defies price signals.

The natural gas market just managed to dodge a collision this summer between excess gas supply and available storage capacity. Now about a month into the gas winter season, storage inventories are still near record levels after topping 4.0 Tcf just two weeks ago. The Henry Hub CME/NYMEX January contract price closed yesterday (December 2, 2015) at $2.165/MMBtu, historically low even as we head into the highest demand months of the year. It’s now clear that 2016 will inherit this bearish market unless there is a Polar Vortex Tsunami in January and February. But what does this mean for producers, and how much will demand respond? In today’s blog, we begin a series on potential scenarios for the 2016 gas market balance.

Before we get to 2016, first let’s recap what has been throwing the market out of balance and how it righted itself this year – sort of.

Earlier we explained how excess supply this summer led storage inventories to record highs despite higher power burn demand. As the injection season started in April, the market was already strapped with a 600-Bcf storage overhang from last winter and debate and speculation swirled around whether production would decline with falling rig counts and how demand would respond to lower prices. Hindsight tells us now that the market was unable to work off the year-over-year storage overhang since inventories surpassed all time record levels by the end of November.

Of course, the culprit behind that overhang and the ongoing surplus is production. Lower 48 output averaged about 66 Bcf/d in 2013 then ramped up to 72 Bcf/d in 2014.  This year, even in the midst of extremely low spot prices, gas production climbed to a record 74 Bcf/d in the summer before dropping back to 72 Bcf/d recently. So we are still pretty close to record production even though the price in 2015 so far has averaged only $2.70, 40% below 2014 levels.   

But it could have been worse. Two factors helped keep a lid on the surplus this year:  power generation and exports to Mexico. With prices that low, power burn has been up about 4.0 Bcf/d versus last year, with demand posting at record levels in many months. Weather helped a little. Power burn is usually a summer phenomenon (for air conditioning demand) and this summer was slightly hotter than last year.

But fuel economics also played a huge role in boosting gas demand outside summer months. With gas prices at historic lows, gas-fired power generators jumped on the bandwagon and utilized their plants at higher utilization rates year round. Structural changes, such as coal plant retirements and the addition of new gas plant capacity helped support power burn growth. And the U.S.’s neighbors south of the border have helped, taking another 0.7 Bcf/d or so out of the market.

*******************************

Misplaced?

At the on-line edition of The Los Angeles Times it is very difficult to find the San Bernardino story. It is buried deep in the on-line newspaper. That was earlier this morning on my iPad, a very, very old version, so it's probably a function of the Los Angeles Times application. On the laptop, the San Bernardino story is the lead story at the full Los Angeles Times web page. The dead couple traveled to Saudi Arabia earlier this year but officials did not connect the dots. Neighbors were aware of suspicious activity at the Redlands house but did not report anything to the police for fear of being accused of racial profiling. Whatever. Syed Rizwan Farook was a health inspector for the county: he inspected swimming pools regulated by the county. His salary was in the range of $70,000. Not bad for a job requiring a high school diploma.

California Dreaming, The Mamas and The Papas

For the archives: it should be noted that less than a month ago, following the Paris terrorism event(s), President Obama reassured the folks of San Bernardino that there was no imminent threat; continue working and don't be worried (or observant).

Typical comment at the LA Times story:

He must have been one of those "moderate" muslims. So somehow in a state where guns are nearly impossible to get legally he had multiple weapons? Funny how that works. You know what REALLY doesnt work? Gun control, it simply makes for easier target rich environments. So keep banning guns California and you will see these things happen more and more. 

Someone else tends to agree? CBS is reporting that the Detroit police chief has said that armed citizens have prevented terrorists from attacking his city:

More guns, fewer problems. That, at least, is Detroit Police Chief’s James Craig’s view of Detroit and fears about a possible terrorist attack.

While cities around the world are on heightened alert following a devastating ISIS attack in Paris, Detroit’s police chief says he believes the fear that armed citizens would return fire serves as a deterrent for a potential terrorist attack in the rust belt city.

Craig called more officers to duty and moved some to locations deemed higher priorities following the attacks in Paris. But he also noted “a lot of Detroiters” have concealed pistol licenses and “the same rules apply to terrorists as they do to some gun-toting thug.”

******************************

Miscellaneous

Linda Ellerbee to retire after 44 years in journalism.