Yesterday was Day#2 of Benposium, the annual Bentek conference being held at the Houstonian hotel in Houston. It was another day when I could attend the sessions as a participant, which is considerably harder work than it sounds. Between Tuesday and Wednesday there were seven outside speakers and 15 breakout sessions with Bentek analysts, each repeated twice over the two days. They went deep into natural gas, crude oil and NGL markets. After 48 hours of Benpo 2012, my brain is full. And there is one more day to go.
Rather than getting into the gory details of all these presentations, I thought it would be a good idea to take a page out of Cramer (that would be Cramer's Mad Money, not Cosmo Kramer) and do a lightning round on all of the major themes I heard across the two days.
Natural Gas
- Natural gas production has been growing like crazy over the past five years. In the past few months it has flattened or declined, leading some to think the trend is reversing. Not so. The decline is mostly due to infrastructure constraints in the high growth areas (Like Tennessee 300 line in the Marcellus and processing capacity in the Eagle Ford) combined with continuing declines in legacy, conventional plays. When the infrastructure gets built out, backed up production will result in a resumption of production growth.
- Most of the market is assuming that dry gas production is in decline. That is true of most dry gas plays. But not in the Marcellus. Because of the capacity constraints mentioned above, a huge backlog of uncompleted wells has built up. These wells have been drilled but not completed and in some cases not been fracked because of lack of take-away capacity. As new infrastructure comes on, these wells can be brought online for some incremental cost in the range of $1.50/MMbtu. A lot of producers will leverage the money already spent and work off the inventory of dry gas wells, even if prices are low. Thus dry gas in the Marcellus will be growing –so much so that it will offset declines in dry gas production throughout the rest of the United States.
- In the short term, the possibility that natural gas storage could max out capacity this fall is still very real. Today coal-to-gas switching by power generators is the only thing holding down storage fill volumes. That is because today gas peaking units are being run 24X7 as base load. But when it gets hot, utilities will need to use peakers as peakers to take care of hot hours of the day. So coal plants will need to come back on as base load. Combine that fact with increasing stockpiles of coal and you reach the conclusion that gas storage is not out of the woods yet. Not by a long shot.
- Sell. Sell. Sell.
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