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Nat Gas Prices Spike On Cold Weather

November 9, 2018

Nat Gas Prices Spike On Cold Weather

Natural Gas

Natural gas prices are sharply up as cold weather is set to sweep much of the country, putting a strain on already low storage levels.

We are heading into the winter season with natural gas inventories at their lowest level in 15 years. Natural gas inventories stood at 3,143 billion cubic feet (Bcf) for the week ending on October 26, or about 623 Bcf lower than at this point last year and 638 Bcf below the five-year average.

(Click to enlarge)

As the chart shows, natural gas inventories ebb and flow with the seasons – drawing down in the winter as American households crank up the heat, and rising again in warmer months as demand slows.

This year has been an interesting one for gas markets. U.S. production continues to break records, with surging output in the Marcellus and Utica shales, as well as skyrocketing gas production in West Texas as Permian drillers pull out gas along with crude oil.

However, higher levels of gas exports in the form of LNG, higher power burn in gas-fired power plants for electricity, and higher demand for gas in petrochemicals and other industrial uses have all led to structural increases in demand. Add to that the seasonal factors – hot temperatures this summer, which stretched into fall, and now, a coming blast of cold weather. In many parts of the country, autumn seemed a little shorter than usual, sandwiched between a long summer and a rapidly approaching winter.

Tight inventories and a bout of cold weather led Henry Hub natural gas prices to jump at the start of November by nearly 8 percent. In fact, prices jumped $0.28/MMBtu on November 5, the largest daily increase in two years. At $3.50 per million Btu (MMBtu), natural gas spot prices are up 15 percent in the past two months, and they are also at their highest level since last January.

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Prices Soar As Natural Gas Inventories Hit Decade Low

October 11, 2018

Prices Soar As Natural Gas Inventories Hit Decade Low

shale gas

Natural gas prices have spiked over the last few weeks as U.S. inventories run low ahead of the peak winter heating season.

Nymex natural gas prices have jumped nearly 15 percent over the past month, rising to roughly $3.30 per million Btu (MMBtu). The market has clearly grown a little concerned about adequate supplies heading into the winter and that is reflected in natural gas prices rising to their highest point since the beginning of the year.

For the week ending on September 28, natural gas inventories stood at 2,866 billion cubic feet (Bcf), or 636 Bcf lower than at the same point a year earlier, as well as 607 Bcf below the five-year average.

Inventories dropped to extraordinarily low levels last winter as much of North America became enveloped in exceptionally cold weather. As tens of millions of people cranked up the heat, the U.S. burned through record levels of natural gas. That stood in stark contrast to the year earlier, when a much milder winter led to above-average levels of gas in storage.

Natural gas markets are cyclical, with a buildup in storage between April and November – the so-called “injection season” – and steep drawdowns during the winter. The stockpiling during injection season is necessary to provide enough supply to consumers for winter heating needs.

But the problem is that the U.S. is currently on track to finish up the injection season with the lowest level of gas sitting in storage in 13 years. Even though demand sees seasonal peaks and valleys, consumption is rising on a structural basis as more coal plants shut down and more gas is exported in the form of LNG.

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Natural Gas Inventories “Dangerously Low”

August 26, 2018

Natural Gas Inventories “Dangerously Low”

NatGas

Futures markets are suggesting the currently benign level of natural gas price volatility may not remain through the winter months.

According to the Financial Times, market volatility this year has been the lowest on record despite inventory levels falling 19.5 percent below average and by the time winter starts are set to be at their lowest in more than a decade.

(Click to enlarge)

Source: Bloomberg (via Financial Times)

The Financial Times puts this down to investors being lulled into complacency by a seemingly unstoppable wave of new supply from the shale market rising inexorably to meet rising demand. The government last week forecast 81.1 billion cubic feet per day in dry gas production for 2018 — a record high — and up by 7.5 billion cu ft/d from 2017, the Financial Times reports.

But is the market safe to assume shale gas will supply regardless of demand?

Natural gas producers are systematically hedging their sales throughout next year, often a sign they plan to continue an aggressive policy of drilling and expansion. That activity has contributed to a dipping of forward prices, as there are more sellers in the futures market than buyers.

But inventory levels are low — some would suggest dangerously low — after a high summer demand due to hot weather increasing demand for air conditioning. Natural gas “power burn” surged to a record 37.7 billion cubic feet per day during July, the Financial Times reports.

Such strong demand comes after a cold winter depleting stocks to unusually low levels. Inventory levels were low at the end of the summer and have not managed to be replaced during the normally slacker summer months. High demand is not helped by exports of natural gas and distillates running at record levels, aided by strong international demand and low U.S. domestic prices relative to global markets.

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Cold Snap Heats Up Natural Gas Prices

January 28, 2018

Cold Snap Heats Up Natural Gas Prices

Natural Gas

Natural gas inventories plunged by 288 billion cubic feet (Bcf) for the week ending January 19, another massive decline that has tightened supplies and pushed up prices.

Total gas inventories now stand at 2,296 Bcf, which is 519 Bcf lower than at this point last year, and 486 Bcf below the five-year average. In fact, inventories are below even the lower end of the five-year range.

(Click to enlarge)

The declines took the market by surprise, helping to push Nymex prices up to $3.50/MMBtu. Only a few weeks ago, prices traded below $3/MMBtu. The “bomb cyclone” that hit the eastern half of the U.S. in the beginning of January led to record levels of consumption. On January 1, total gas consumption in the U.S. hit an all-time single-day high. Still, prices only climbed modestly.

But another round of cold weather is in store, and the consistent declines in inventories for several consecutive weeks has drained U.S. gas storage. New forecasts show cold weather sweeping the country from the Midwest down to Texas and eastward. “The concern is in February, deliverability gets even more constrained versus the January event,” Joel Stier, a trader at StierBull Trading LLC, told The Wall Street Journal.

With inventories already drained from earlier this month, the buffer is getting rather thin. “Storage is low — precariously low,” Bill Perkins, who runs Skylar Capital Management LP, told the WSJ.

Gas inventories rise and fall according to the season, with inventories filling up between March and October, then drawing down in winter months. The last few weeks of sharp declines in storage put the U.S. on track to exit the winter season at about 1,320 Bcf, according to the median estimate of eight analysts and traders surveyed by Bloomberg. That figure would be 23 percent below the five-year average.

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