Are Natural Gas Prices Set To Spike?
Natural gas storage is at record low levels but prices are falling going into winter heating season. Markets seem to be betting that wellhead supply will be sufficient to cover demand this winter. That may be but at what gas prices? This is a game of natural gas risky business.
Natural gas 6-month calendar spreads moved in backwardation in early September and climbed to +$0.57 on October 9. Henry Hub spot prices reached $3.28/mmBtu but both spreads and price have fallen since then (Figure 1).
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Figure 1. Natural gas 6-month closing spreads & price reached maximum levels of +$0.57 and $3.28/mmBtu during week ending October 12 but have fallen since. Source: Barchart, Quandl and Labyrinth Consulting Services, Inc.
The upward movement of prices and spreads were a long time coming considering the massive storage deficit that began in October 2017 (Figure 2). Current storage is -493 bcf less than the 5-year average and we are only a few weeks away from the beginning of the 2017-2018 winter heating season. Storage is an almost unbelievable -693 bcf less than during the same week in 2017 and yet, markets are seemingly unfazed!
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Figure 2. Natural gas comparative inventory (C.I.) deficit began in October 2017. Current storage is -493 bcf less than the 5-year average. Source: EIA and Labyrinth Consulting Services, Inc.
What, me worry?
This has led to the lowest end-of-storage (EOS) level in history. October working-gas-in-storage (WGIS) is only 3.29 tcf and a projected monthly average C.I. of -400 bcf is also the lowest in history for October (Figure 3).
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Figure 3. October 2018 working gas in storage (WGIS) lowest ever (3.29 tcf). Comparative inventory also forecast to be lowest ever at (-440 bcf). Source: EIA STEO and Labyrinth Consulting Services, Inc.
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