Sunday, October 4, 2009

October Will Be Tough

Imagine as a royalty owner opening the Saturday Wall Street Journal and seeing the headline, "Natural Gas Rises 5.6% Despite Record Supply." You'd feel alright about a price of $4.718/MMBtu, huh? If you then look in your local paper which reports the Henry Hub spot price for gas (as mine does) and see the price of $2.32/MMBtu. You'd spit out your Cheerios.

Get used to that sensation. October will be a hellish month if you are dependent on the spot or wellhead price of gas. The storage situation is going to make life rough. Because storage in the Producing Region is just about full, it makes the logistics of moving gas a little more difficult. I've also read that some storage companies are starting to decline new gas, holding a few spots for later injections. It must be a terrible feeling for a producer to be denied storage - sort of like being at a restaurant when the maitre d' telling you to keep waiting when you see empty tables.

There is a glimmer of hope: revised weather outlooks suggest winter temperatures 5-10% below normal.

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