Natural Gas Weekly & Storage Recap

This injection season has posed an interesting challenge with the withdrawalseason coming to an end with less than 1 Tcf in storage, a situation the markethasn’t faced since 2003. This has brought about the need to inject at a rate thatis significantly greater than the 2.1 Tcf-2.2 Tcf observed during the ‘normal’injection season, just to enter winter 2014-2015 with enough storage tomanage the increasing baseload demand and the contingency of significantweather-related demand for natural gas. Although the market typically usesdifferent pricing levels to encourage or discourage discretionary demand as abalancing item, this summer the loss of discretionary demand will be a maindriver in the refill of storage, thus limiting downside risk to price.

    Additionally, changes in production will be closely scrutinized as the recentmoves in price at the front of the New York Mercantile Exchange (Nymex)forward curve have done little to encourage producers to redirect capitalexpenditure already pledged to liquids-rich and/or oil plays this year.

    There is little doubt that the supply/demand balance has loosened over the pasttwo months, and that loosening has just as clearly impacted the psychology ofthe collective market. The summer (April-October) strip has relatively limiteddownside from here, the current refrain goes, but there is no urgency to theupside without a demonstrated knowledge of power dispatch conditions absentsupportive weather — so once the month of March becomes recent history.

    And thus the prompt April natural gas futures contract at the New YorkMercantile Exchange (Nymex) has languished in a generally tight tradingrange amid a gentle downward slide, despite a year-over-year working gasinventory deficit that has ballooned to greater than 930 Bcf — an occurrencethat has traditionally accompanied a sharp move to the upside.