Tuesday, February 23, 2010

Here We Go Again

I've been watching natural gas prices fall over the past week with a sinking feeling.  Cold weather has helped even out gas supplies a great deal (although for some not as much as hoped), but with some expected milder weather on the horizon, the storyline of reduced demand/increased supply is returning and futures prices now are at their 11 week low

The net quantities of gas withdrawn from storage so far this year has been strong.  From the peak in late November (a couple of weeks later than usual) through the second week of February, a total of 11 weeks, 1.812 Tcf of gas has been withdrawn from storage.  Based on the five year average, typical for this time of year is a net 1.8 Tcf withdrawal, so we are pretty much on track even though there have been two fewer weeks of withdrawals. 

Looking ahead to this Thursday's numbers, if the current storage figure is going to catch up to the five year average for this time of year (1.84 Tcf) we will need to see a 185 Bcf withdrawal this week. 

Looking further ahead, the five year average for exiting the withdrawal season is 1.478 Tcf, and this typically has occurred in the third week of March.  If you assume that same timing, current storage levels have five weeks to shed 547 Bcf, or about 109 Bcf per week.

Of course, none of these figures can counteract the belief that supply will overrun demand, and that's what runs the market right now.  Increased pessimism about the likelihood for an energy/climate bill that will reduce the amount of coal consumed probably hasn't helped either.  Cold winter weather has been helping support and stabilize gas prices, but until economic fundamentals improve and non-heating demand picks up, the storyline will be over-supply/low demand.

1 comment:

Anonymous said...

If this technology is real it will be great for natural gas demand.


Watch the 60 minute story.