Dennis, great articles, thanks for sharing them. I like that "rubber band" analogy, let's run with that a little. As amply demonstrated by Robry's LT extrapolations, the rubber band can't possibly remain stretched as tightly as it has been in the last 10 weeks because if it were the result would be absurdly low levels of natty storage. In the first article one of the guys prognosticated that the rubber band will "eventually" get loosened this year, in that coal-to-gas switching will go down from its current 5 bcfd to a "mere" 3 bcfd.
Robry's model is calling for just under 3.8 TCF of ending storage this fall, let's round that up to 3.8 TCF. His model, which uses only the last 10 weeks' storage data, has in effect been "faked out" by the unusually high amount of coal-to-gas switching that has occurred during that timeframe. But even if you adjust that by the expected 2 bcfd reduction on coal-to-gas switching (i.e. 14 bcf a week) starting in week #21, you still end up with ending storage that is probably not maxing out the current capacity, 4,178 BCF. I don't believe the coal-to-gas switching will come down that soon, plus I believe production will come down several bcfd between now and October due to the reductions in the natty-directed rig counts that have been occurring over the last 6 months or so.
So the bottom line is that the supply/demand fundamentals of the natty market seem to be just fine in spite of the fact that the "rubber band" is not going to remain stretched as tightly as it is currently. |
