It’s Thursday morning and we have another significant natural gas storage report which will affect electricity prices and gas prices in Texas, as well as nationally.
The analysts were expecting an increase build-up in the amount of gas in storage to be +110 bcf. The report showed a nice build of +113 bcf. The price of the current natural gas contract was down about one cent before the report, down about 5 cents immediately after the report came out, and is currently down around 3 cents. Not much change overall in today’s pricing.
The significance of today’s report is it is the SIXTH week in a row where we have had a build-up in the supply of natural gas in storage of more than 100 bcf. Only one other time did we have a five week period of +100 increases. We have now exceeded the five-year average increase nine weeks in a row.
BUT, natural gas in storage at this moment is still at the lowest point in 11 years. I believe we will see a record increase of gas in storage for the April to October time period this year of + 2.6 tcf. Such a record build-up would put our supply of gas in storage at 3.4 tcf going into the November to March winter months. This would still leave us with the smallest reserve in storage since 2005.
The majority of analysts expect a significant price spike going into the winter months, even if we reach 3.4 tcf in storage. I lean in the other direction as I believe due to the record gas production from our development of shale deposits we will see the power generation plants, the huge users of gas, be able to use more gas from actual production and not be required to draw down as much from the gas in storage this winter.
Overall, I don’t see any significant changes in gas prices, and therefore electricity prices, in the coming months unless we have a significant stumble in the storage numbers along the way. I see production to continue beating the five-year average month after month, and natural gas to continue to trade in its current trading range between $4.30 – $4.93.