Peters on NG 

Natural Gas Coverage Group Sensitivity
  • Current U.S. natural gas storage of 1,777 BCF is 795 BCF (31%) lower than this time last year and 118 BCF (6%) below the five year average, driven by strong withdrawals this winter (2,221 BCF compared to last year’s 1,322 BCF). However, with weather driven demand having lessened, storage injections are expected to be higher Y/Y in coming weeks (see chart below).
  • With U.S. natural gas production expected to increase modestly Y/Y in 2013, we believe demand will continue to dictate natural gas storage levels as well as prices. Thus far in 2013 U.S. power demand has decreased by ~3.2 BCF/d Y/Y (14%), with recent weeks showing a more pronounced weakness. With spot prices now reflecting a meaningful premium to equivalent coal pricing, we see the potential for some U.S. utilities to switch to coal as we enter the peak power season. Assuming injection season weather demand in line with the five year average and a ~3.5 BCF/d (12%) Y/Y reduction in power demand, we forecast storage to exit the injection season at ~3,750 BCF, ~150 BCF below 2012 levels.
  • The current 12-month forward NYMEX natural gas strip is $4.22 per MMBtu, which is 46% higher than the 12-month forward strip at the same time last year. Although natural gas fundamentals have improved Y/Y, this is largely a function of favorable weather and strong power demand, helped by low gas prices. With improved natural gas prices pressuring power demand, we believe a continued positive trend in weather demand is required to support further strengthening in natural gas prices.
  • We have included a sensitivity analysis for our E&P coverage universe (page two and three), highlighting each company’s sensitivity to a potential increase/decrease in 2014 NYMEX Henry Hub and AECO-C natural gas prices. Our base case assumes current 2014 NYMEX Henry Hub and AECO-C strip prices of US$4.33 per Mcf and C$3.86 per Mcf, respectively. Our sensitivity assumes a 20% increase/decrease to our current natural gas price assumptions.
  • The natural gas weighted companies which have the most leverage to rising prices include Birchcliff, Cequence, Delphi, Encana, NuVista, Paramount, Perpetual, Peyto, Tourmaline, and Yoho.
  • The natural gas weighted companies with the strongest balance sheets under the low case scenario include ARC, Artek, Chinook, Kelt, Long Run, Peyto, Tourmaline, and Trilogy.

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