Friday, March 30, 2012

Natural Gas: Storage Sites Begin to Turn Gas Away as WSJ Contemplates $0.00 Spot Price

The near futures were up 0.007 last I saw.
First up, the Edmonton Journal:
Owners of some U.S. natural gas storage sites began turning some customers away this week for fear that the system will overflow in autumn, the clearest sign yet that surging production may wreak havoc in the market later this year.

Huge supplies of shale gas from newly exploited deposits are set to fill U.S. storage caverns and tanks to their limit this year for the first time, threatening to force producers to shut down wells or risk overloading the pipeline network.

Signs of the strain became evident this week, as storage operators rejected some supplies to ensure they have enough space to meet all of their contractual commitments over the summer. Gas inventories typically fall in winter and rise in summer, and storage companies usually sell much of their capacity months or years in advance.

TransCanada's ANR Storage, one of the country's biggest storage owners, halted gas injection services indefinitely for interruptible clients this week "due to storage field constraints," a notice on its website said....MORE
And from the Wall Street Journal:
Why Natural-Gas Prices Could Fade to Red
Traders like to exude an "I've-seen-this-movie-before" air of nonchalance. But the thriller unfolding in natural-gas markets—call it "Frackopalypse Now"—has even the most jaded of them on the edge of their seats.
U.S. natural-gas prices are at a decade low, at about $2.20 a million British thermal units. That marks an unprecedented discount to crude oil. And next week heralds the start of "injection season," the time from April through October when warmer weather allows for rebuilding gas inventories.
This could make an already bad glut of gas far worse. The fear is that producers could be forced to actually give gas away.

Thursday's weekly report from the Energy Information Administration will likely show an earlier-than-normal start to the injection season, with an inventory build of about 50 billion cubic feet of gas, according to analysts' estimates. The mild winter and bountiful supply from the new production technique of hydrofracturing, or "fracking," shale formations has left inventory higher than ever for this time of year. April will kick off with inventories near 2.5 trillion cubic feet, 900 billion cubic feet above the five-year average.

Over the past heating season, inventories declined at a 30% slower rate than the five-year average. If half that was due to warmer weather and the other half to structural overproduction, capacity of four trillion cubic feet could be full by mid-August, with 12 weeks left in the injection season.
Since gas would have nowhere to go, prices could, in theory, turn negative. Market forces will do their best to counter that as dirt-cheap gas prompts more utilities to switch from coal. Industrial companies such as Dow Chemical Co. DOW +1.38%and Nucor Corp. NUE +0.35%also are reacting by using more cheap gas and related products....MORE