Reality Check -- June 13, 2016

... and with that, I'm going biking. Off the net for awhile. Watch for the Director's Cut.

Bullish EIA Natural Gas Storage Report -- RBN Energy -- June 13, 2016

RBN Energy: a bullish EIA storage report signals a big shift in the US natural gas market. Folks paying attention will note that a couple of dots are starting to connect concerning this story and a recent John Kemp tweet. Earlier I said I would come back to this if the spirit moved me. Apparently the spirit moved me. From RBN Energy today (at the link is much, much more):

The U.S. Energy Information Administration on Thursday (June 9) reported a surprisingly bullish 65-Bcf injection for the week ended June 3—that was 8.0 Bcf below our Natgas Billboard estimate and more than 10 Bcf below the Bloomberg industry average assessment. [Wow!]

In response, the CME/NYMEX Henry Hub July natural gas contract screamed about 15 cents higher following the report to a settle of $2.617/MMBtu, the highest daily settle for the prompt month in nearly 9 months.

Thursday’s gains extended a rally that began on May 31 (2016) just after the July contract rolled to the front of the futures curve. It’s likely the rally was initially spurred by market participants looking to cover their short positions. But in the past week, an increasingly bullish fundamental picture has emerged prompting us to raise our price outlook.

In today’s blog, we analyze the fundamentals behind rising natural gas prices.

We closely track natural gas supply and demand to forecast storage and price in the daily NATGAS Billboard report – a joint venture with our friend and veteran expert Kyle Cooper of IAF Advisors.

On the supply side, U.S. natural gas production was initially relatively flat following the June contract expiration, but since last week, production has declined by 0.6 Bcf/d to an average of 71.9 Bcf/d the week of June 3, which is also 0.5 Bcf/d below the 30-day average and 1.0 Bcf/d under the year-to-date average.

Production volumes have been struggling to stay above 72 Bcf/d much less get back to staying consistently above the 73 Bcf/d mark we saw in March and early April (2016). A combination of pipeline maintenance events (which can reduce capacity available for receiving and flowing gas) and possible operational issues related to another bout of heavy rains and flooding down in Texas is keeping production down. Volumes are not just down week-on-week but also flat to lower versus last year, which is supportive of price.

But in our book, that alone would not seem to warrant a 50-cent run-up in price.

However, when we factor in demand, the rationale for a much more bullish outlook firms up.

U.S. consumption – including power, industrial and residential/commercial demand – has climbed nearly 1.0 Bcf/d over the past two weeks. By itself, this isn’t extraordinary for this time of year.

After fairly moderate (boring) weather through April and May, national average temperatures are gradually rising as summer approaches, which is bringing on incremental gas-fired power generation demand for air conditioning—again a normal trend for this time of year. But indications are that power demand is coming on much stronger earlier in the season than usual.

Since June 1, natural gas demand for power generation has averaged close to 30.5 Bcf/d, which is a new record high for this period and about 4.0 Bcf/d higher than last year. It’s also a big jump (of more than 5.0 Bcf/d) from the May 2016 average.

June 1 also marked a step change in how much gas is being burned per degree (temperature-adjusted demand).

Our NATGAS Billboard models demand to show where it’s coming in relative to historical volumes at the same temperatures.

Demand from April 1 to June 1 (2016) had been averaging about 2.6 Bcf/d higher than it historically has on a temperature-adjusted basis and had climbed to as much as 5.3 Bcf/d higher --- the expected result of increased gas-fired generation capacity and lower natural gas prices relative to coal. But in the last two storage weeks (since May 28), that weather-adjusted demand level has shot up to an average near 4.4 Bcf/d, with a couple of days coming in well over 6.0 Bcf/d.

The natural question is what is driving this supply/demand delta? RBN Energy suggests it could simply be a reporting error; not all data is available. I like to think it might be related to US manufacturing but I'm always looking through oil-stained glasses.

Much more at the RBN Energy link. But did you catch that "temperature-adjusted demand" stuff?

By the way, connect today's RBN energy blog with the recent John Kemp tweet in which he noted that "cooling days" were increasing across the US this summer. 

Supreme Court Rejects Puerto Rico Restructuring Law -- June 13, 2016

Updates

May 3, 2017: Puerto Rico files for biggest ever US local government bankruptcy. 

May 1, 2017: deadline tonight. Take it or leave it. If bondholders refuse deal, bankruptcy protection ends. Lawsuits begin. 

April 12, 2017: Puerto Rico seen sliding toward bankruptcy as May 1, 2017, deadline nears. Data points:

• $70 billion in debt
• last year (2016), US Congress tried to help Puerto Rico's situation with a freeze on creditor lawsuits
• but the freeze ends May 1, 2017, and an extension by Congress is "not going to happen"
• one source: "avoiding bankruptcy is impossible"

Original Post

Link here.

The Supreme Court on Monday struck down Puerto Rico’s effort to restructure its public utility debts, ruling Congress had precluded the territory from enacting its own bankruptcy legislation.

The 5-to-2 vote increases pressure on Congress to act to resolve the island territory’s fiscal crisis, since Puerto Rico as a U.S. territory has no authority to provide for municipal bankruptcies.

Really, really bad news for Apple. Link here:

The Supreme Court on Monday made it easier for patent holders to win increased financial damages in court from copycats who use their inventions without permission.

The high court, in a unanimous opinion by Chief Justice John Roberts, overturned a specialized lower court that had adopted hard-to-meet standards for winning punitive damages, even in cases where someone infringed upon a patented invention intentionally.

The chief justice said the lower court’s standard was too rigid and effectively protected some companies from being punished with larger monetary penalties despite their willful trampling on another’s intellectual-property rights without permission.

Federal law allows trial judges to award enhanced infringement damages to patent holders that total three times the amount of actual damages in a case.

On the other hand, some good news. Congress passes a resolution "condemning" an Obama-inspired proposal to add a new $10.25/bbl tax on crude oil to pay for transportation infrastructure. I assume Prince Salman was a huge supporter of this proposal. Analysts suggest the tax would add 25 cents/gallon of gasoline. My hunch is that the 25 cents is off by about $1.00. US shale can't survive at oil less than $40. At oil barely at $50 now, adding a $10 fee, takes US shale back to $40. It would pretty much crush the industry. It would make a lot more sense to set a reasonable "percentage" fee that wouldn't kick in until oil was well above, let's say, $150. LOL.

Unfortunately The Bakken Flaring/Fracking Meme Was Released Years Ago -- Once A Meme Goes Wild, It Can Never Be Re-Captured -- June 13, 2016

I'm Not Seeing The Uptick In Fracking DUCs Everyone Is Talking About -- June 13, 2016

You may want to keep your browser open to the Director's Cut site. The report was to have been released on June 10, 2016, according to his "tentative Director's Cut dates." I just checked and the tentative date has not been changed; it still shows as June 10, 2016, 11:00 a.m. The tenth is really early in the month for the report to be released, suggesting a typo, but it would be such a glaring typo that it would not be missed, at least not in Bismarck. The full statistical report, when released, will be linked here.

Water flooding. For those who have not seen the most recent post on another possible example of the "halo effect," I have posted an interesting update from a reader. Is this not an example of "water flooding"? There have been discussions whether water flooding would work in the Bakken; does this push the discussion along?

Active rigs:

	6/13/2016	06/13/2015	06/13/2014	06/13/2013	06/13/2012
Active Rigs	28	75	185	185	211

RBN Energy: a bullish EIA storage report signals a big shift in the US natural gas market. Folks paying attention will note that a couple of dots are starting to connect concerning this story and a recent John Kemp tweet. More later, if the spirit moves me.

Previously posted, but posting again:

For those who may have missed it, the Miss North Dakota 2016 pageant took place in Williston, at the Williston High School. Miss Grand Forks, Macy Christianson, lists her hometown as Minot. It was nice to see that "Miss Oil Country," Cara Mund, was among the five finalists. In fact, she was first runner-up. I assume these are one and the same: back in 2006, ten years ago, Cara Mund was a 7th grader at Horizon Middle School in Bismarck, ND, where she was crowned Miss Junior Teen Oil Country. 

I've never understood how Williston is always able to showcase some of these events. I think it's quite remarkable and quite wonderful for Williston to get the pageants. Williston is also a frequent host for the annual national Babe Ruth World Series League championships. 

Availability of lodging should not be an issue. 

Bloomberg has a story on DUCs. I think I posted it / linked it yesterday. Analysts suggest frackers are getting back to work. I've not seen any evidence of any significant increase in completing DUCs yet. I just went through the "new wells reporting" for 1Q15 and 2Q15 and no change since the last update.

The New York Times has a great article on corporate farming in North Dakota. Until recently corporate farming was banned in North Dakota. Then the legislature, a year ago, opened the door and the governor signed a new law allowing corporate farming. Apparently NoDaks were not happy with the new law; petitioned for a referendum and got it, and now they vote to overturn the law.

Update: ND voters overwhelmingly voted to overturn this law. Corporate farming not allowed in North Dakota.