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Page added on July 17, 2014
Analyst skeptical whether natural gas supplies will be ample for winter
Natural gas futures prices for 2015 have declined, but the drop might not be consistent with the supply, according to investment firm Sterne Agee.
Writing in advance of the Energy Information Administration’s natural gas weekly update Thursday, analyst Tim Rezvan said the amount of gas in storage now is already low. And assuming the amount of natural gas being injected into storage wells rises 20 percent over past averages into November, supply still may be insufficient to meet winter demand, leading to rising prices.
Under the 20-percent scenario, storage would peak at 3.27 trillion cubic feet, he said.
“This inventory looks light compared to last winter’s unseasonably strong drawdown of 3.01 Tcf (trillion cubic feet), but possibly sufficient assuming a more normalized 2.2 – 2.3 Tcf drawdown during winter.”
However, Rezvan said he is skeptical that amount could even be set aside by fall, considering that forecasts are calling for a return to “normal” weather next week.
With the futures prices having dropped 8 percent to $4.05 per thousand cubic feet in the past month, the market apparently has already decided gas supplies are not a near-term concern. And that, he said, is a “dangerously premature conclusion.”
“We believe that makes for a dangerous game of chicken heading into the middle of winter, when the outlook for this winter’s drawdown becomes clear,” he wrote.
28 Comments on "Analyst skeptical whether natural gas supplies will be ample for winter"
Makati1 on Thu, 17th Jul 2014 8:37 pm
Feast or famine…
Plantagenet on Thu, 17th Jul 2014 8:43 pm
Higher NG prices will lead to more NG production. The problem right now is that NG prices are too low in the USA to get NG production going.
Nony on Thu, 17th Jul 2014 10:25 pm
online dot wsj dot com/articles/natural-gas-prices-fall-to-7-month-low-1405618775
Next month gas contract just broke below $4. Gas inventory has gone from half below normal levels to a quarter below normal levels.
Plant: it’s the cold summer that has reduced demand. The gas is still being produced a lot, so storage is catching up.
Fred on Fri, 18th Jul 2014 12:52 am
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rockman on Fri, 18th Jul 2014 7:41 am
“…the market apparently has already decided gas supplies are not a near-term concern.” Good to remember that for every $ bet on this futures price someone else bet a $ that this price is wrong.
In reality a winter price spike in NG prices does little to encourage more drilling. At a minimum the industry use a yearly average when running economic analysis on drilling decisions. And then we look at least 5 years forward in the pricing forecast. My company has no more interest in drilling for NG today regardless of last winter’s price spike. The big price jump was felt in the retail market. Almost no operator sells into the retail market. The NG I sell belongs to someone else once it travels at most a few miles and in some cases less than 100′. Retail NG comes from the utilities and companies in the NG storage business. We sold NG from the well head last winter and didn’t get paid anything close to what New England consumers paid.
An significant increase in yearly average price would get us drilling more. Nothing else will do it.
Kenz300 on Fri, 18th Jul 2014 8:07 am
Wind and solar coupled with some storage seems to be safer, cleaner, cheaper and more available.
Northwest Resident on Fri, 18th Jul 2014 9:54 am
“Higher NG prices will lead to more NG production.”
Up to the point where people can no longer afford to use NG, or refuse to use NG because it is too expensive.
There must be a very thin price range that NG can be sold for that fluctuates based on the status of the general economy.
Price of NG a little too low — production drops because there isn’t enough profit in it.
Price of NG a little too high — people stop using NG because they either can’t afford it or they just refuse to pay for it.
Last winter we bought long johns and wore sweaters rather than heat the house to a nice toasty temperature, and a lot of other people will do that too if the price of NG goes above a certain level.
If fewer people are paying for NG because of the high price, I’m guessing that would put a slowdown on NG production even at higher prices because they aren’t selling enough of it.
Of course, other than a few grannies who’ll freeze to death in their apartments and a growing portion of the population who have been excluded from the economy, most of the rest of the American people will burn that NG without restraint no matter what the cost just to keep their fat butts warm and comfy. After all, it is the American way.
Nony on Fri, 18th Jul 2014 10:36 am
NWR: have you ever heard of supply and demand? Price can vary quite a bit if it needs to, to balance supply and demand. Just look at past history.
Rock: volume is up and price is down. And down for a while per the futures 5 year outlook. Marcellus is kicking butt.
Northwest Resident on Fri, 18th Jul 2014 10:47 am
Nony — Yeah, I think I may have heard of that “supply and demand” concept once or twice.
Have you ever heard of demand destruction?
Looking at (and analyzing) past history is a very valuable tool to predicting the future. Except when the rules of the game suddenly change resulting in a playing field where nothing is the same as it was before.
Like I said on one of my posts yesterday, Nony. There is no NG-related development that you don’t see as truly promising and based on sound financial principles. But you never answered my question yesterday — what happens to NG production when the cost of that production goes up due to (greatly) increased cost of oil due to oil shortages. In that scenario, which is surely headed our way, do you still see NG as being a way to offset the decline in worldwide oil supplies?
rockman on Fri, 18th Jul 2014 10:48 am
Nony – So true. And yet for every $1 someone bets that oil/NG/fuel oil/gasoline prices will go one way someone bets a $1 that it will go in the other direction. And the brokers make the same commission regardless of who wins. What a great system: instead of going to Vegas you can gamble from your desk. LOL
Nony on Fri, 18th Jul 2014 11:09 am
And for every barrel sold on spot market there is a seller to match the buyer. Called “price”. Oh…and sometimes the price changes a bunch later…and seller or buyer (not both, one or the other!) would be better off to have waited.
Nony on Fri, 18th Jul 2014 11:14 am
NWR:
did you read the paper I gave the url for? Dot means . Can you handle that? You don’t need to read the boring technical parts about the methodology and math. The beginning and end sections are fine.
The paper I linked to said that oil price rises make gas price rise NOT because of being a factor of production OR from drilling impacts…but because of demand effect. IOW, when oil price goes up, NG price goes up because they compete in some sectors. So, yeah NG price goes up, but that does not cause demand destruction! The price went up because of demand creation!
Please…stop, think about this, man. Don’t fly off and retort.
Nony on Fri, 18th Jul 2014 11:26 am
Imagine that natural gas is hot dogs and crude oil is hamburgers. When the price of hamburgers goes up, some people (not all, some) don’t want to buy hamburgers any more. Now some of them might just eat less meat. But there’s a reasonable amount who want hot dogs. Now, demand for hot dogs goes up…what does that do to price of hot dogs? Up.
Now of course the market is complicated with many factors. But if you don’t at least grasp this concept, how can we get more sophisticated?
Northwest Resident on Fri, 18th Jul 2014 11:40 am
Nony — In your example, when the price of hamburgers goes up, the price of hot dogs goes up AUTOMATICALLY, because it is only the burning of lots and lots of hamburgers that makes hotdog extraction possible.
Or, maybe there are NG-powered excavation and drilling rigs and NG-powered train/truck transport for hauling that NG to its destination. If NG can be produced independently of the cost of oil, then I’ll take a bite of your hamburger/hotdog analogy. But as far as I know, the only way to produce NG is WITH oil-derived fuels. Therefore it follows that if the price of oil goes up then the price of NG goes up — and that’s not extra profit for the NG producers, that is extra expense — expense which the paying public may or may not be able to afford.
Nony on Fri, 18th Jul 2014 11:52 am
Dude, you’re confused. Like a snipe lecturing a twidget on trons. Understand me, sailor?
rockman on Fri, 18th Jul 2014 12:13 pm
“…the market apparently has already decided gas supplies are not a near-term concern.” We’re talking about the futures market…not the spot. Less the a fraction of 1% of the volume traded in my of the energy futures market is actual a physical commodity. IOW almost no oil/NG/fuel oil/gasoline actually changes hands. They are simply trading “paper bbls” that don’t actually exist. Essentially no different on betting on the Super Bowl before the season even starts.
Northwest Resident on Fri, 18th Jul 2014 12:35 pm
Nony — I do understand you, but not in the way you think. Keep on posting. And never stop believing in the power of NG. Stay cool.
Nony on Fri, 18th Jul 2014 12:38 pm
The market has decided that NG is neither an immediate concern (hence the low spot price) or in next few years (hence the futures price).
Yes, it’s a guess. But a guess with MONEY on the line. And they could be as wrong about prices going up as they could be about prices going down.
P.s. Reading the comments from ~20009-2010 from Berman (even one from you Rock, although usually you dodge) about how NG prices just HAVE to rise to keep production flowing are interesting. We’re 5 years later and volume is up 20% with price at $4!
That really is a mighty, mighty Marcellus. Yeah…you ain’t drilling GOM gas wells. Because the Marcellus is kicking your ass. It sure ain’t because demand dried up!
marmico on Fri, 18th Jul 2014 2:07 pm
12 month strip, 3 years in arrears>/A>. The peaker NG punditry should crawl under a rock and hope they aren’t fracked. Who is betting against 25 TCF production in 2014? Thank you NG producers for the consumer surplus.
Nony on Fri, 18th Jul 2014 4:33 pm
Marcellus 1, Berman 0. Engelder 1, Berman 0.
Really is funny reading his presentations from 2009-2010. When will he give it up? Face the music, Art. That’s a loooooooong bubble. 😉
longtimber on Fri, 18th Jul 2014 7:26 pm
2014 Weekly Recharge rate and Inventory Levels. This anywhere else in such clear graphic form? Print it and start an office pool for awareness… Got PV? http://americanoilman.homestead.com/GasStorageGraph.html
Northwest Resident on Fri, 18th Jul 2014 7:38 pm
“Yes, it’s a guess. But a guess with MONEY on the line.”
That is funny money — Monopoly money — freshly digitized new created with a click of the mouse gazillions of money on the line, put “on the line” by those with billions and probably trillions laying around that they don’t have anything to do with but pump into the stock market including futures. What you don’t want to recognize, Nony, is that the stock market is a warped and twisted version of its former self, completely detached from fundamentals, with the Fed and blue chip companies and everybody else purposely putting money into the stock market to keep it pumped up and detached from fundamentals. The stock price or futures price of any company or commodity tells you almost nothing of real value these days. But hey, keep reading those tea leaves, you still might hit the jackpot with NG futures.
Nony on Fri, 18th Jul 2014 8:24 pm
I’m reading more and more stuff from 2009 and 2010. Berman made all these slams on the Marcellus based on a year and a half of data from the Haynesville! A different formation with different pressure and fracture pattern. And even now 5 years later, he trots out the same old crap…rather than looking at the AMAZING growth of the Marcellus itself.
Engelder 1, Berman 0.
Nony on Fri, 18th Jul 2014 8:39 pm
This is some good post mortem of the Marcellus. The people slamming it really messed up.
extension dot psu dot edu/natural-resources/natural-gas/webinars/marcellus-reserves-and-estimates-substantiated-by-production-data
Engelder is a very experienced academic geologist who knows fractured rock very well (it is the natural fractures of Marcellus that make it so special). He is not some anti science dummy. Not a Fox News talkin head. He’s got a lot more applicable knowledge than the typical peak oil forum commenter.
Nony on Fri, 18th Jul 2014 8:44 pm
Some really nice decline curve analysis from minutes 25-30 of the podcast. I wonder how many here will really listen to it. How many are interested in learning?
Northwest Resident on Fri, 18th Jul 2014 9:00 pm
Nony, all the NG in the world isn’t going to save us from the consequences of peak oil. When oil supplies start declining from their current level, NG is going to be more expensive to extract and deliver to market. As oil supplies continue to decline, so will production of NG. Natural gas is a wonderful thing, very useful, but it comes in a far distant second place to oil, is dependent on oil, and isn’t really relevant to the peak oil debate. Why are you so focused on natural gas, that’s the real question.
Nony on Fri, 18th Jul 2014 9:09 pm
I love it. 🙂
Nony on Fri, 18th Jul 2014 9:10 pm
Now stop reading Dkos and DU and watch the podcast.