Morning Update Feb 19, 2020

Production is falling, and this time it can’t be saved by increases in efficiency. In 2016, NG wells produced less at the end of the year than at the beginning. Since then, in the years leading up to now production has grown about as fast as it ever has. I don’t have all the data, and I’ve preached this before; much of these gains came from a major boost in well efficiency increases. Using more sand, less water, the right type of sand, the pressures used, the way the slurry is mixed, the number of stages per well. Fracking technology has come a long way since even I was in the field. Improvements will continue, but most likely not at the rate we’ve already experienced.

There has also been demand growth unlike ever before, with major expansions of exports and NG fueled electric power generating. Before 2016, LNG exports were non-existent. Now, they are near 10% of all NG demand, and still growing.

So both supply and demand are going to slow soon, and LNG may even go backward in consumption for a bit. No doubt global import facilities will pop up at the current prices, but at what rate, I don’t know. I’ve always liked Natgas more than Oil for one main reason. It has been easier for me to keep track of from day to day because the news of natgas has always been contained within the United States. LNG exports made things exciting on the front end, because the world needed LNG far more than the US had to give. Now that is changing, and with LNG, US supplied Natgas is now on the global stage. This may not be such a huge deal, but it is another dynamic that must be tracked in order to be successful at trading. As for now, watching feed-gas to LNG exports facilities may be enough. To have an edge, one needs to know where that gas is going and what the demand situation is like in the world before it slows down at an export facility in the US. It would be nice to know global supply and demand capacities to gauge what is going on. Of course this leads to global news, much the same as Oil. This leads to much more reading that I may have time for…

Anyway, back at home, in the US. Production is falling.

EIA Drilling Productivity Report, Production by region

The EIA is expecting almost every major region of NG gas production to decrease except Haynesville and Permian. This will be the first time in quite a while, the EIA has projected a fall in overall production. Possibly Oct 2016?

It’s time to go long. I’ll worry about LNG exports when the rest of the market shows concern. Most of the expected weakness in LNG exports may already priced in, meaning the price may not drop much further, even if LNG does stall out some. There is still plenty of countries taking LNG, and plenty of countries who have now decided to cut back on expansion plans for LNG exports.

It’s time to turn perma-bull and have confidence again in my trade. That being said, there is still a need to be cautious of dips. But I believe if the lowest low is not already behind us, it will be very soon.

I’m going to remove my stop on UNG, I’ll be holding my 75% fund in UNG. I will only reduce to 50% funds when UNG gets to $15.71. I will get back on my path of buying the dips and selling only at new highs. They will be coming soon enough. Patience.