WARMING UP
Natural gas sets up for interesting run
Short natural gas injections this summer are setting up an interesting market for producers as the country enters into winter.
Data posted by the U.S. Energy Information Administration predicts the annual injection season for the fuel will end this month with about 3.26 trillion cubic feet in storage.
Over the past five years, the average amount in storage on Oct. 31 has been about 3.8 trillion cubic feet.
Analysts stressed this week the lower storage amount doesn’t mean the country is expected to face a natural gas shortage this winter, especially given the fact that the National Oceanic and Atmospheric Administration is predicting the season will be mild.
But they did say it sets the natural gas market up for improvement. Prices for the fuel already have climbed somewhat over the past several weeks.
Eric Fell, a senior natural gas analyst with Genscape Inc., said this week the price has been trending upward for about a month.
“You actually have to go back to 2005 to find the last time when storage levels in the ground in the U.S. were this low,” Fell said.
Fell said the market injected more into storage this summer than it did a year ago, but added that storage levels for the year started out nearly 600 billion cubic feet lower.
“We needed to inject a lot more than normal to get back to comfortable levels,” he said.
Lower natural gas levels boost the chance the market could have a problem at some point during the winter in providing enough of the fuel to meet everyone’s needs, Fell said.
And while he observed the weather “has a huge say,” he added the possibility of having an issue if it is cold is higher than in past years.
Fell said apprehensions about potential issues have rallied the price for natural gas, somewhat, observing the market price for natural gas delivered in January has climbed to $3.30 a thousand cubic feet, checking the market
Wednesday afternoon.
“Who knows what the weather is going to do? The current market is very interesting,” Fell said.
Changing trends
Tony Say, a natural gas analyst and president of Oklahoma City-based Clearwater Enterprises, agreed with Fell that the setup going into the winter is interesting and could benefit natural gas producers.
He attributed the predicted lower-thannormal injection total to various factors, such as the fact the country is exporting the fuel in a liquefied form, that the summer cooling season boosted demand for the fuel from power generators and that the growing economy also boosted demands for the fuel from manufacturers.
Summer consumption of the fuel has been increasing the past several years, Say said.
Plus, he noted other weather forecasters have a little different take for the winter season than NOAA, predicting the last few months of the season could be a little colder than average.
But Say also observed that pricing, while up, isn’t out of control.
“What is keeping a lid on natural gas prices is not necessarily the weather, because it is very speculative and difficult to forecast,” he said.
“Buyers aren’t really worried because there is still an abundance of natural gas out there and they believe there are ample supplies to take care of demand.”
Still, Say believes there could still be some significant price increases for the fuel as the winter season unfolds.
Last year, for example, spot prices for the fuel climbed above $5 a thousand cubic feet in January, data from the energy information administration shows.
“I am cautiously optimistic for the gas-producing community. If we have a normal or a little-bit-colder winter than normal, you could see some price spikes,” he said.