Natural Gas/Electricity

I had lunch yesterday with the President of one of the big electricity providers in Texas, and he & I talked extensively about natural gas and electricity prices.  We both commented on the significance of gas at $3.800 because that seems to be the benchmark year after year – it is expensive if above $3.80 and inexpensive below that mark.

Yesterday natural gas closed at $3.800.

This morning’s natural gas storage report brought us more good news and lower prices.  For the 26th consecutive week the amount of natural gas put into storage exceeded our five-year average.  As you will remember from my notes six months ago – the horrible winter weather this year consumed over 3 TRILLION cubic feet of natural gas we had in storage.  There were fears we would not be able to replace that amount through the year and we would face shortages this coming winter, especially if we faced another similar cold winter.  Gas prices had shot up to over $6.

This fall’s weather has been mild, and we are currently seeing weather across the nation about 15 degrees higher than normal so we are not using as much gas as in average years.  Add to that the record production of natural gas this year and we continue to add to the amount of gas in storage at a record pace.

Today’s natural gas storage report showed the 26th consecutive week with the amount of gas going into storage exceeding the five-year average for that corresponding week – another record.  Also, the Wall Street analysts were expecting an increase of 91 bcf and we exceeded that too as 94 bcf of gas was added.  (Last year we added 79 bcf and the 5-year average is 78 bcf.)  Six months ago the analysts were writing we would not be able to rebuild our supply of gas to the 3.5 – 3.6 trillion cubic feet in storage we would need in order to get through another frigid winter as we endured last year.  The amount in storage 6 months ago stood at only 50% of the five-year average.

Today we have 3.299 trillion feet in storage, only 344 bcf below last year’s number and 362 bcf below the 5-year average for this corresponding week.  It appears now the higher temps, lower than expected usage, and the continuing record production due to fracking will extend the record amount of gas being put into storage.  It appears we will catch up with the five-year averages within the next month, and traders of gas are starting to see the “writing on the wall.”  Gas prices dropped this morning, after the report’s release to $3.744 which is a low we have not seen since last September.  This bodes well for lower electricity prices.