Stephen Smith Energy Associates

                                                        Energy Investment Research

Weekly Gas Outlook 

This weekly publication presents projections for natural gas storage for the upcoming week, based on the results of our proprietary model, and includes an analysis of the key factors that influence gas storage changes.   Our econometric model incorporates the effects of:

¨       Heating and cooling degree-days,

¨       Weekly hydro generation (Pacific Northwest),

¨       Weekly nuclear availability,

¨       Estimated impact of production trends, import trends, and hurricanes,

¨       Impact of fluctuations in the relative price of competitive fuels on the gas share of industrial and electric utility power demand.

The Weekly Gas Outlook is published at least 50 weeks per year on Monday morning of each week to allow a 3 day lead time before the release of Department of Energy (DOE) weekly gas storage on Thursday. 

Strong Track Record of Comparative Forecast Accuracy for Storage Change Estimates

Our model projections have been more accurate than those of a standard group of 15-20 published estimates (by investment, energy trading, and energy consulting firms) which we track each week.  Our average forecast error for the last 65 weeks has been 9.2 Bcf as compared with an average forecast error of 11.3 Bcf for the universe of published forecasts that we routinely compare against.  For 41 weeks of the last 65 weeks, our forecast error has been less than the average of the errors for our standard group of competitor estimates.

In early November 2004 we completed a series of substantial revisions to our weekly model.  In the seven week since then our average forecast error has been 8.3 Bcf as compared with an average forecast error of 14.3 Bcf for our competitor tracking group.  This is still “early days” for the new model so the 65-week performance record deserves more attention.  Our model tends to outperform best in the winter months so it is unlikely that we will be able to maintain this type of spread for a full year, but we are encouraged by model performance to date.

Forecast Storage Range Recently Extended

In our recent set of model revisions we extended the model’s forecasting range from one week to thirteen weeks.  The first week’s storage change forecast continues to be based on actual HDDs, CDDs, Pacific Northwest hydro generation, and nuclear plant availability.  The base case for the following 12 weeks of the storage forecast are based on average HDDs and CDDs for the last ten years.  The following chart is the type of chart we can now routinely develop to compares storage outlooks based on alternative HDD scenarios.

Several Important “Calls” Anticipating Gas Price Moves 2-3 Months in Advance

Example 1.  The following is a direct quote from the Weekly Gas Outlook dated Nov-01-2004 (when this WGO was published with latest gas futures data was available thru Oct-29-2004).

Assuming a normal weather November/December, and barring a major oil supply disruption during this period, we are projecting a target gas price range of $6.25-$6.75/MMBtus for January Henry Hub bid-week prices.  This is our first forecast of January bidweek prices.  This compares with an October 29 Henry Hub cash price of $6.43 and a January futures price of $9.38/MMBtus. 

As it turns out HDDs were 8% milder than normal for Nov/Dec and the closing price of the January futures contract was $6.213/MMBtus.

Example 2.  Direct quotes from the Weekly Gas Outlook dated Jun-09-2003.

Gas prices averaged $6.25/Mcf for the week ending June 6  ... the gas market appears to have become overly bullish in one very important respect.  For the moment at least, it appears not to have noticed that, if weather had been normal for the last five weeks, the storage deficit would have been shrinking at a rate 27 Bcf per week as compared with the actual rate of 7 Bcf per week that was observed.  A deficit reduction pace of 27 Bcf per week would eliminate the storage deficit by the start of September.  A freakishly cold May/June effectively masked the strong pace of price-induced demand destruction that has been taking place in the industrial/utility sectors.   … we expect to see lower prices in the next few weeks. 

As it turns out gas prices did decline from the $6.26 level in early June and averaged $4.68/MMBtus for the week of July-25-2003.

Download a complimentary sample copy

To download a copy of the Weekly Gas Outlook for 1/10/05, please click below.

Click Here to download 1/10/05 Weekly Gas Outlook

Subscription Price

The subscription price for the Weekly Gas Outlook is $750 per year.