Natural Gas Storage
Higher Than Expected Storage Injections Add to Storage Glut
Last week the Energy Information Administration (EIA) reported natural gas injection of 68 Bcf into storage, which was slightly more than predicted. Current storage levels are 47% above the 5-year average and 33% above last year’s level.
After last week’s storage report, spot market prices and near-term prices remained flat. We did see some increases in long-term prices. Calendar years 2017, 2018 and 2019 prices experienced slight increases. With summer temperatures looking to be higher than normal, and gas production projected to be flat for the rest of 2016, we may see our glut of gas in storage begin to erode. If storage levels decrease over the summer, winter prices may begin to shoot up.
Weather Forecast: Temperatures Are Warming Up
May temperatures look to be warmer than average east of the Mississippi River and the northern states, per the National Oceanic and Atmospheric Administration. Only New Mexico and the South Central states are expected to experience below normal temperatures.
Longer-term (90 day forecast), the entire country except the South Central states will be above normal temps. Only Texas and states to its north will see below normal temps.
We could begin to see higher electric demands due to increased air conditioning loads. These AC loads may cause natural gas generation to ramp up faster than expected, thus reducing our storage levels. Any marked storage decreases could send gas prices higher.
Natural Gas Prices Move to over $2.00/MMBTU Threshold
June natural gas contracts are at $2.06 / MMBTU, up slightly over May’s sub $2.00 close. With a revised summer forecast of above normal temperatures, long-term prices are experiencing an uptick.
Natural gas production is predicted to remain flat throughout the summer. If a hot summer occurs, demand will outpace supply; eating away our strong storage surplus. Any storage erosion will be result in higher winter gas prices.
Electric prices look to be holding flat. Analysts are watching the summer temps closely to see if this summer’s electric prices will move up in tandem with the temperatures.
The Table is Set Up for Higher Winter Prices
Summer temperatures look to be above normal. Natural gas supply looks to be flat. If hot temperatures cause an increase in natural gas-fired power generation, we will see more gas burned in generators and less pushed into storage. Any decrease in storage usually is met with an increase in winter natural gas prices.
The question is . . . shouldn’t you lock in winter 2017 prices now while prices remain low, or roll the dice that market prices will continue to stay low next winter?