Natural Gas Supply/Demand
Posted: Tue Feb 20, 2018 10:00 am
Musing from the Oil Patch by Allen Brooks at PPHB, an Energy Investment Banking firm on 2-20-2018
When we look to the trend in natural gas storage published by the Energy Information Administration (EIA) in its weekly report, we see how current storage volumes are well below (-23.5%) the 5-year average, and are coming extremely close to the bottom of the weekly storage range. While that would suggest the market might be ready for a bounce if more cold weather is encountered, it is important to note the sharp decline in the bottom of the range as we move toward the end of the withdrawal season. Thus, the future for natural gas prices will be determined by the advent of more cold weather than has normally been experienced in the past. Absent that, it is likely that growing gas production will continue to weigh on gas prices.
Without more cold weather, natural gas price bulls will have to soon turn their attention to the long-range forecasts for summer temperatures. Will we have an extremely hot summer that will necessitate greater air conditioning that will demand increased electricity and more natural gas fired power generation? Natural gas traders are now finding that their activities are more like those of farmers than energy analysts. As a result, traders may find it more appropriate to be scanning the weather charts than the commodity price charts.
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My take is that natural gas supply/demand is tight by historical standards, but traders keep seeing extremely bullish supply forecasts coming out of EIA. There is no doubt that we have massive natural gas reserves in this country. The question is: "How does deliverability match up with rapidly growing demand for space heating, power generation, exports and industrial demand?" EIA's weekly storage reports show that demand has exceeded deliverability over the last twelve month by 521 Bcf.
With winter heating season coming to an end it is probably not going to matter much what March weather is like, but a colder than normal March will push natural gas storage even further below the five year average and that will increase gas demand during the refill season (April to October).
When we look to the trend in natural gas storage published by the Energy Information Administration (EIA) in its weekly report, we see how current storage volumes are well below (-23.5%) the 5-year average, and are coming extremely close to the bottom of the weekly storage range. While that would suggest the market might be ready for a bounce if more cold weather is encountered, it is important to note the sharp decline in the bottom of the range as we move toward the end of the withdrawal season. Thus, the future for natural gas prices will be determined by the advent of more cold weather than has normally been experienced in the past. Absent that, it is likely that growing gas production will continue to weigh on gas prices.
Without more cold weather, natural gas price bulls will have to soon turn their attention to the long-range forecasts for summer temperatures. Will we have an extremely hot summer that will necessitate greater air conditioning that will demand increased electricity and more natural gas fired power generation? Natural gas traders are now finding that their activities are more like those of farmers than energy analysts. As a result, traders may find it more appropriate to be scanning the weather charts than the commodity price charts.
----------------------------
My take is that natural gas supply/demand is tight by historical standards, but traders keep seeing extremely bullish supply forecasts coming out of EIA. There is no doubt that we have massive natural gas reserves in this country. The question is: "How does deliverability match up with rapidly growing demand for space heating, power generation, exports and industrial demand?" EIA's weekly storage reports show that demand has exceeded deliverability over the last twelve month by 521 Bcf.
With winter heating season coming to an end it is probably not going to matter much what March weather is like, but a colder than normal March will push natural gas storage even further below the five year average and that will increase gas demand during the refill season (April to October).