From the Financial Times:
The US natural gas market is sending out mixed messages. Supplies held in underground storage are at the lowest level in a decade, but futures prices suggest the country is still a land of plenty.
This contradiction has begun to spark debate among analysts. Has a tough winter dealt a lasting blow to stores of the heating fuel? Or will gas drilled from shale rock again flood the market once temperatures – fingers crossed – climb?
The answer to these questions has big implications on the direction of natural gas, used by manufacturers of everything from steel to fertiliser and widely tracked by commodity investors....We are in agreement, having speculated that ending supplies in storage could drop as low as 800 Bcf . The exact quote from our Feb. 20 post "Natural Gas: Storage Report Comes In As Expected, Futures Drop":
...Teri Viswanath, gas analyst at BNP Paribas, says the futures market has it wrong. This week she raised her forecast for 2015 gas prices from $4 to $4.55 per mBtu.
“Despite the industry’s best efforts to bring additional supplies to market, we believe it will take more than a single injection season to swing the market back into equilibrium,” she says.
Ms Viswanath argues “structural” increases in gas consumption, from new, cleaner-burning power plants to petrochemical complexes, will divert some gas away from storage caverns. She likens this year’s end-of-winter inventories to a serious crunch in 2003, which set off a “six-year cycle of tightness” that sent gas to record highs above $15 per mBtu.
Citigroup believes inventories will plunge to 875bn cu ft by the end of March, less than half the average. “The market may need more than hopeful signs of production growth and precipitation on the West Coast” – which would allow more hydroelectric generation, reducing reliance on gas power plants – “to replenish depleted gas inventories”, the bank says....MUCH MORE
...There is a structural shortfall of natural gas potentially shaping up. At 1,600 Bcf of gas in storage as of Valentine's day and with another cold snap coming next week it is possible that we may end the heating season in the 800 Bcf range.
And here's the problem. A cold winter is often followed by a warm summer. Looking back to the 1930's some of the largest winter/summer temperature spreads ever recorded occurred in 1936 (also in '34 but I don't have the table):
Just shy of 170 degrees F in both North Dakota and Montana!
We have been so successful switching electrical generating plants from coal to natural gas, have built almost $100 Billion of chemical co. infrastructure to take advantage of natty and have had some (small as a percentage) uptake of natural gas powered transportation that we may have trouble building storage reserves for the 2014-2015 heating season.
Be careful what you wish for eh?...
