Friday, June 22, 2012

Understanding the Big Picture

In its Investor Day presentation yesterday, Encana put together a very nice big picture presentation about the current market fundamentals and path for natural gas (and liquids) in North America.  I find Encana's economic analyses very even-keeled (as opposed to Chesapeake's, which come off overly rosy) and informative.  Take a spin through it - highly recommended.

Below are some slides I thought were interesting.  The presentation has lots of information about natural gas liquids, which I did not include because they are off-topic for the Haynesville, but it is very interesting (if you're into that kind of thing).

The slide below is very interesting because it depicts the increased use of gas in power generation, which has been an absolute savior for the price of gas (yes, it can get worse).  But it also represents the biggest growth demand market for natural gas.

One of my favorite topics is the closure of old coal plants.  Here is a good map of coal plant retirements closures.  Maybe we should have a retirement party.

Here is how Encana sees the U.S. oversupply situation playing out for the rest of the year.  I'm not 100% on board with this, but I like it.  I tend to believe that utilities will not do quite as much gas-for-coal switching over the next six months because of the oversupply of coal and take-or-pay contracts that will drive up costs if coal isn't used. But by November - be it from a gradual decline in production, extra demand from utilities or just topping out of storage capacity - the "reset button" will be hit and the oversupply situation will be over (at least for this year).

Associated gas is the wild card to me.  There are not a whole lot of reliable estimates of projected growth in "freebie gas," but it has a significant impact on the supply-price picture going forward.  Of course, with oil prices skidding of late, I am not sure how accurate this projection is (or for that matter how long oil prices will be relatively low).

This is but a taste of the larger presentation.  Definitely take a look at it.

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