Natural Gas/Electricity

Last November we were bouncing along with natural gas prices in the low $3.50 range. We had a comfortable amount of gas in storage, and were anticipating record gas production in 2014.

The table turned on January 6, 2014 when the first of the major cold front hit most of the United States, including Texas. What a surprise as the winter vortex of 2014 clobbered the US and drained natural gas supplies throughout the winter, down to an 11-year low. Prices in February for gas shot up to above $6.50 for the current contract.

Just seven months ago you saw me writing these articles about the “experts” were telling us how we would not reach 3.3 – 3.5 trillion cubic feet of gas in storage by the time this winter’s cold weather would arrive, and they predicted higher gas prices.

The “experts” were wrong. As I have continued to document – week after week during the last seven months the natural gas going into to storage has exceeded the five-year average for the corresponding week. Today’s natural gas storage report shows 3.571 trillion cubic feet in storage, an amount the “experts” said was impossible to reach just seven months ago.

This week’s report was stunning. The “experts” polled this week predicted a build in our gas in storage of 79 – 90 bcf. The average number was 87 bcf. We actually ended with an increase of 91 bcf, outside the “experts” range to the upside. And this compares favorably with only a 35 bcf increase last year and a 42 bcf increase in the 5-year average. We are now only 238 bcf below last year’s amount in storage at this time versus the 1,005 bcf we were behind back in April of this year, our 11-year low.

The record production of natural gas continues. A few weeks ago natural gas prices finally broke out of their trading range and dropped all the way down to 11-month lows around last November’s $3.50 range. Then the weather began to change around the US and the traders began to run the price up in fear of a shortage. Yesterday gas prices closed at $4.194 on the current contract, and went down 8 cents after the release of today’s storage report. But the traders have jumped in again and prices are up 6 cents from yesterday as weather, not gas in storage, is the story feeding the price increase.

As I have mentioned before in these articles – 1) record gas production will continue, especially with pricing above $3.80; and 2) I believe we will settle into a higher trading range now through the winter with a high of around $4.50 on the current contract. If we have another cold winter similar to last year prices will again spike above $6, but normal winter weather should see prices stay around $4.50 until spring time because we have sufficient gas in storage.