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  • rainbow3100 rainbow3100 Jan 25, 2013 6:30 PM Flag

    Injections & Withdrawals - Life With a NG Junkie

    Everybody knows I'm a NG Bull. With winter more than half way over, looks like we aren't going to come close to slicing into the 5 yr average storage figure by the end of the withdraw season, but the injection season (this junkie likes those injections) should prove an entirely different story.

    The January 24, 2013 EIA natural gas storage report showed a 172 Bcf decrease this week, bringing the total working gas in storage to 2.996 Tcf. The net withdrawal was in line with last year (-162 Bcf) and the five year average (-176 Bcf). The current storage level is now 5.0% below last year (3.153 Tcf) and 12.0% above the five year average (2.676 Tcf). Next week promises to be much better, but its simply going to be too late in the season to make up the difference against the 5 year average at the end of the withdrawal season. However, the figures will be far superior to last years.

    Lets look into the withdrawal figures first before I start shooting up again. The withdrawal figures for 2011 were pretty much in line with the 5 year averages, here is how they worked out from where we are now forward.

    Jan 28, 2011 -189

    Feb 04, 2011 -209

    Feb 11, 2011 -233

    Feb 18, 2011 -81

    Feb 25, 2011 -85

    Mar 04, 2011 -71

    Mar 11, 2011 -56

    Mar 18, 2011 -4

    Total 928 bcf draw in 2011 for the remainder of the withdraw season and once again pretty much in line with the 5 year average. Next week the draw should be well above the 2011 figure, the following week probably in line to perhaps slightly below. It will be tough to hit that Feb 11 figure. I figure a further decline of 900 bcf should be attainable by end of the withdrawal season, putting us at around 2.1 tcf in storage well below the 2012 figure of 2,369. In 2011 it finished the season with 1.612 tcf in storage, which was pretty much in line with the 5 year averages.

    But here is where it gets really interesting, the 2012 injection season was far lower than any of the past 5 years. Lets start at the beginning (lowest level of storage at the end of the withdraw season) and end when it peaks.

    Injections:

    March 09, 2012 2.369tcf to Nov 02, 2012 of 3.929 tcf or a difference of 1.560 tcf
    March 18, 2011 of 1.612tcf to Nov 18, 2011 of 3.852 tcf or a difference of 2.240 tcf
    March 12, 2010 1.615 tcf to Nov 05, 2010 3.840 tcf or a difference of 2.225 tcf
    March 13, 2009 1.651 tcf to Nov 27, 2009 3.837 tcf or a difference of 2.186 tcf
    April 04, 2008 1.234 tcf to Nov 14, 2008 3.488 tcf or a difference of 2.254 tcf

    So from 2008 to 2011 we saw on average an injection of 2.226 tcf, then it radically reversed itself in 2012 to only 1.560 tcf or a difference of 666bcf. If we see the same pattern this year, peak storage will be 2.1 tcf + 1.560 tcf or 3.660 tcf leading into next winter. This would put us well below the 5 year average of 3.789 tcf and should lead to higher prices. If we start to see a decline in production, like I and many others think is coming, things could really get out of control.

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    • Hi rainbow,..I know you are in a number of different NG plays. How about XCO?

      • 1 Reply to prospern23
      • Prospers, I'm not in XCO, but its probably good to go. My precipice is to buy the low cost NG companies and to diversify. Share price of the NG companies will accelerate if NG prices hold, and I'm betting price will hold longer term. We may see a few bumps, it's moved a lot faster on the front end of the curve than most thought it would. I'm actually liking the backside staying down. Nobody is going to move CAPEX plans until the backside hits 5.50 plus. If this pattern continues, the front side of the curve will go nuts. Eventually after the traders #$%$ it out the backside will respond. Many variables involved and these are just my opinions. I've been wrong lots of times so don't bet the farm on my opinions. And once again diversify...not just within this sector but across the board in various industries and countries.

        GLTU

    • This is an opportune time to bump this post as we just had the first Injection of the season. As the original post is somewhat dated, an update appears in order. I may have been wrong about stating that Withdraws would not effect the pricing of NG as much as Injections, but find it ironic that we had this Huge move in NG prices on the first Injection report of the shoulder season.

      The withdrawal season lasted longer and the draw was greater than what I was forecasting at the time of my original post. Hence NG has moved even faster than I thought it would, I was wrong and am happy to admit it (usually when I'm wrong I hate it).

      There are a lot of forces at bay that will effect NG pricing going thru the shoulder season:

      1. With the price of NG high, coal comes back into play for power generation. This will mitigate demand for NG compared to last year when NG was far cheaper to burn than Coal.

      2. The growth in supply appears to have dried up. In fact we may finally be seeing the long awaited decline in production. If such is the case it will be very bullish for shorter term NG pricing and if rig counts don't move up appreciably, the backside of the pricing curve should move up as well.

      3. Actual production number statistics aren't published real time, the EIA estimates lag by months. State figures are constantly adjusted, so it's very difficult to figure this out in real time.

      4. Associated NG production coming out of various Oil Fields. The Eagle Ford and Bakken in particular come into play as pipelines for NG that was previously flared get hooked up along with new wells. I don't think this will offset the decline in other dry Gas fields that have for the most part laid down their rigs.

      5. The Marcellus backlog completions getting hooked up and quite a few rigs still drilling. This is the most significant factor overall, and its the toughest one to get a grasp upon. Many wells were hooked up Q4 and Q1, but there is still a backlog. How good are the backlog wells? How rapidly will production grow in this play?

      The overall static decline of NG is around 30%, I've postulated before and continue to maintain that the current low rig count, associated NG production, and Marcellus won't make up the difference. I speculate that we are now going into decline and that prices will continue to move up, though may have gotten a bit ahead of themselves right now.

      Current storage is 1.704 tcf. In order to hit the lowest level of storage in the last 5 years at the start of the Withdrawal season, an injection of 1.784 tcf would be needed. That amount is significantly higher than last year, but well below 4 of the last 5 years. An average injection of 2.226 would put the figure at 3.93 tcf - mildly bullish. If 1.560 tcf is injected like last year, storage ends up at 3.26 tcf - extremely bullish.

      Lets watch the Injection Season unfold, we sure got a nice pop on the first Injection report today. This NG junkie loves those injections (low dosages only please). So far so good and hope I'm right about the decline kicking in, the trend is definitely up and appears to have a lot more room to go.

      It maybe a little overbought right now, likely will see volatility in both directions, but its hard to argue with the trend line.

      • 4 Replies to rainbow3100
      • I too plan to watch the injection season closely. My intuition leads me to believe that there not as much gas shut in over the last year or so as many believed. I believe that most of these shale companies were so desperate for cash flow that it was impossible to shut in for long. I have been in this business for more than 30 years and I have seen only 1 company shut in gas in a low price environment. Hey but I could be wrong. I also want to see how many temporarily abandoned wells waiting on completion are finally completely and turned on.

        On another matter, I don't see much discussion about the Century Plant any more. I am wondering how that will be resolved? I don't see how Piñon can be sold without that millstone around SD's neck.

      • rainbow,

        Please give some details about Injections and Injections season. I am trying understand the information you posted. Thanks

      • Now gman; I think you have had enough to drink today ! Go to bed like a good little boy ! gman, I criticize your Daddy for failing to take you to the woodshed. Had he you would be a different gman.
        My mother would have slapped your face till your ears rang like chapel bells on a cold winter morning.........Now go to bed, do not forget 1 aspirin and a glass of water. This will diminish your hangover in the morning. Thus making gman much more palatable.....

        Happy Payback Himself; By the Way A Little Socialism Won't Hurt This Republic One Bit......

      • I think there is a new field we will hear more about, some people already have. If you pay attention Which i believe you do. The newer play which i believe i live very close too is the Eaglebine. That seems to be what there calling it i,ts similiar to the Eagleford is just further east. Was doing DD on ZAZA will see in the months to come if theres anything too it. Pointblank is in San Jacinto cty, and a well was drilled and completed last week appears to be very good in the farthest northern part of the county.

    • Just a bit of news:
      Gov. Bobby Jindal, South Louisiana Methanol CEO Barry Williamson and Todd Corp. Group CEO Jon Young announced that South Louisiana Methanol LP will invest $1.3 billion in a new methanol production facility on the banks of the Mississippi River in St. James Parish. Located across the river from the Nucor Corp. project in Convent, La., the South Louisiana Methanol, or SLM, project will create 63 new direct jobs; LED also estimates the project will result in 374 new indirect jobs, for a total of more than 430 new jobs for the area.
      T

    • BENTEK Top Stories
      03/08/2013 –
      Supply/Demand Balance Analytic Report
      Power Burn Falls, Trimming Overall U.S. Demand

      A 1.6 Bcf/d decline in power burn to 18.4 Bcf/d has led overall U.S. demand to fall 1.4 Bcf/d to 80.5 Bcf/d today. While the North region remains flat at 30 HDDs, South temperatures rose 4 degrees today, slashing demand from the regional power sample by 0.66 Bcf/d. At the same time, a 1.7 Bcf/d downward revision to Thursday's res/comm number nationally actually led to a 0.1 Bcf/d increase in that component to 39.7 Bcf/d. Overall, milder temperatures are expected to prevail in the North and South Regions, dropping weekend demand, while colder temperatures in the West through Sunday will support demand. U.S. dry production dropped 0.2 Bcf/d, driven by declines in the Northeast, with production from BENTEK's Northeast PA Dry sample down 0.1 Bcf/d. Additionally, net Canadian imports fell 0.3 Bcf/d, primarily in the Northeast and Midwest regions.

      Key note here is that Northeast Dry gas production is declining. If that trend continues, NG will really take off. Additionally, Haynesville production is on the decline, and recent well completions aren't near as good as they used to be, looks like most of the sweet spots there have been drilled.

      Most were thinking that Marcellus Dry Gas production in the Northeast would increase dramatically, perhaps this current report is an anomaly, but it certainly deserves attention. Additionally, it looks like we are going to end the withdraw season with less NG in storage than my previous projections of around 2.1tcf, looks like it will be closer to 2.0tcf...Very Bullish for NG.

    • I think the injection season will be very interesting to watch this year. Most will concur that the current situation is not sustainable. Some in the NG business tell me the gas/oil price ratio will return to 15:1 sooner rather than later. If so, prices north of $6.00 must return soon.

      There is a tremendous effort in the Permian Basin to reign in costs. Not sure it is working out too well which is why I watch the rig counts each week as well as well as the NG storage. we live in very interesting times.

    • Man its tough to get a good thread going on here other than the TPG/Ward show down.

      Anybody pick up on that CHK deal with Methanex for Methanol production? CHK is going to totally bypass normal NG pricing and tie it to Methanol, and Methanex is thrilled silly with it at these low NG prices. How about the Encana/Nucor J/V deal, a long term J/V for NG production that goes towards steel?

      Will the Fertilizer companies be next? Koch brothers want to keep NG prices low for fertilizer, and their polymer interests. Good luck discovering what is going behind the scenes there as they are not a publicly held company.

      A BTU is a BTU, and there are many different ways NG can be deployed. At @ 6 to 1 ratio, NG should be trading at $15 with $90 oil and does so in many of the Asian markets. Its cheaper to produce and sell in the US than oil largely because of transport costs being so much lower. Historically in the US its been in the 8 to 10 range with Oil. At a 10 to 1 ratio that would put us at $9 plus.

      Alternative pricing models are going to be the new fad with more end users getting into the J/V game with the NG producers. This will reduce supply to the traditional consumer and industrial users. Its starting to happen and will continue. And lets not forget about those LNG exports. Cheniere Energy (stock symbol LNG) has the only permit approved so far and it will come on line late 2015 building towards 1.8bcfd - that in itself is Huge. But there are at least another 15bcfd permits that have been applied for. Certainly not all of these permits will be approved in the US, but the Canadians have a number of permits pending, and they are more inclined towards exports to higher priced markets than the US, and Canada does in fact still export quite a bit of NG to the USA. Other demand drivers include the NG Highway and local conversion of Waste and Bus Fleets.

      Many fundamentals are changing within the US NG market. The government can restrict our exports of it in its raw form, but cannot restrict it (under current regulation) in its refined form. Natural Gas to Liquids plants are on the way (refined form). The equation is slowly changing and often times the pendulum of pricing swings too far in one way or the other.

      And you guys heard it here first on the Injection Season being more critical than the Withdrawal season, that hasn't come out of any analyst so far that I am aware of. None that I have seen have posted that 666bcf differential. Its the Devil in disguise to the rise in NG prices.

      • 3 Replies to rainbow3100
      • Great "post" Rainbow!
        YES,..lots off Utility Co's switching over to Nat Gas,..the future, does look,.. "bright"!
        It WON'T matter, tho,.. if current Mangm't keeps "robbing" us!
        Sd will be a $5.00 stock if Ward isn't replaced,..THOSE are the HARD,..FACTS.
        Then SD see's one of,.. Ward's NEXT,.. 5 or 10 year,.."plans",... Phucq,..him!!
        all JMVVHO.

        Doug

        Sentiment: Buy

      • It's tough to get a good thread going other than tpg/ward show? Lmao........usually a hostile takeover of a company you own stock in is big news to people who own stock in that company. Honestly what kind of statement is that? It would be like your mom on her death bed with family visiting and your complaining about everyone talking about mom dying instead of the weather. Forgive your fans for being worried about the company and CEO, who you praised daily, is in a fight for his life and the future direction of company is up in the air. Hello people.........am I getting thru????

      • Hi Rainbow; Lets have some real analysis, subject material....The Superbowl on Feb-03-2013...
        Now that has some real depth of thought. Any input would be much appreciated. Who knows trmmara & ribby may join us on that subject.......

        Me just finished another ham and egg early bird breakfast at the Coronado within the SouthPoint.......

        Good - Night; Happy Payback Himself

 
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