Each summer the price of natural gas, and therefore electricity, are impacted primarily by the weather – too hot and we use our air conditioners more, and/or we have storms in the Gulf of Mexico which disrupt oil & natural gas production.
This year we have another piece to the equation – the amount of natural gas in storage because we used such a record amount during the horrible winter weather this year and drew down our supply to an eleven year low.
You have read in my previous reports experts feel we will need to EXCEED the 5-year averages by 25 – 35 bcf of gas going into storage EACH WEEK in order to get back to the necessary levels by this winter to get us through another cold winter.
Good news! Shale production is helping us achieve record levels of new gas going into storage. Great news!
The analysts were looking for an increase of 117 bcf of new gas going into storage with this week’s storage report. The report says we exceeded that estimate, and we increased the amount of natural gas in storage by 119 bcf. Exceeding the analyst’s estimates is always good for lower prices. The current contract was trading up 2.5 cents before the report and began trading DOWN 4.5 cents right after the report’s release.
But more important – the amount of gas going into storage far exceeded the amount of build up last year for the corresponding week, and exceeded the 5-year average by a huge 26 bcf. We have now exceeded the five-year averages each week for the past six weeks, and have increased the amount in storage by 112 bcf over the 5-year averages in that time period. Secondly, the amount of the increase is GROWING LARGER each week.
Normally prices for gas and electricity start to increase this time each year as the hot summer months force us to use these commodities to run our air conditioners. I think, since prices are already so high this year due to the past winter’s weather we won’t see a significant price increase this summer. IF, and I emphasize “IF”, the storage numbers continue following the current pace of build up – we should see lower prices again, maybe back into the $3.80 range for natural gas, around September or October.