Rig activity, demand keep gas prices strong

Demand for natural gas continues strong with gas in storage still roughly 20% below year ago levels, based on injection figures for the week ended July 14. But weather-related issues could make the next 2 weeks injection rates appear strong, compared to 1999 at this time, experts say.


Demand for natural gas continues strong with gas in storage still roughly 20% below year ago levels, based on injection figures for the week ended July 14. But weather-related issues could make the next 2 weeks injection rates appear high, compared to 1999 at this time, keeping prices in check, experts say.

In a weekly analysis of the gas market, SalomonSmithBarney Inc. analysts say, however, they remain bullish on prices based on demand and drilling rig activity.

The North American natural gas rig count has remained relatively flat for the past 3 weeks at about 715 rigs working, while storage injections over the past 11 weeks have averaged 1.1 bcf/day�about 10% lower than last year.

Based on SalomonSmithBarney's model, say analysts Robert Morris and Michael Schmitz, domestic deliverability should be increasing at this stage, although at a pace that should still leave production levels, on average, below last year through the rest of the storage refill season.

"Our model continues to indicate that the domestic natural gas rig count must exceed 800 for an extended period just to return deliverability to where it stood at the beginning of last year, while demand is expected to continue to increase in the interim," they explain.

Temperatures have averaged about 2.5% warmer for the past 11 weeks, compared to this time last year. Given this increase, natural gas demand for cooling load needs should have been greater than in 1999, although nuclear power supplies are roughly 6% higher this year than in 1999.

But temperatures have also averaged nearly 14% cooler than the past 10-year average, they say. However, the last 2 weeks of July 1999 were 33% warmer than the preceding 10-year average, resulting in storage injections of only 41 bcf and 26 bcf, respectively, for the weeks ending July 21 and July 28.

As a result, injection figures in the next 2 weeks, compared to 1999, could look high "without some help from Mother Nature," they say. This is likely to keep natural gas prices in check near term, Morris and Schmitz predict.

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