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U.S. gas storage building slowly
Petroleum News Houston Staff
U.S. natural gas storage is building slowly but still remains well below the seasonal norm, setting up a potentially strong price floor this summer and into next fall.
Depending on just how hot its gets this summer, natural gas prices should range between $5 and $7 per million cubic feet, Stephen Smith of Mississippi-based Stephen Smith Energy Associates said May 19.
“A summer as hot as last year would likely drive gas prices to the upper half of this range and, for brief periods, possibly beyond,” Smith said.
To reach minimal normal levels, he added, gas storage would have to increase by a net 11 billion cubic feet each week over the remaining 30 weeks remaining in the build season to wipe out the current projected storage deficit of 347 billion cubic feet.
“We’ve been chipping away at the deficit for the last four or five weeks, with the average price a little over six dollars,” Smith said. “So we’re going to need some kind of price that looks like that … to get back to normal.” Comparison to five-year average Normal is how current weekly storage levels compare to the five-year average for any particular week between 1994 and 1998. Smith issues his forecasts a week ahead of official reports and has now beat consensus estimates for nine consecutive weeks.
For the week ending May 16, Smith’s supply-demand model projected a gas storage build to a total of 995 billion cubic feet, up 95 billion cubic feet from the previous week. That compared to 1.342 trillion cubic of total average storage for the same week during the 1994 to 1998 period.
The model’s projected build was 11 billion cubic feet more than the normal seasonal average of 84 billion cubic feet for the week, suggesting the deficit would decrease by 11 billion cubic feet to 347 billion cubic from the previous week’s 358 billion cubic feet. Smith attributed the projected storage build mainly “to demand destruction resulting from the sharp recent run-up in gas prices.”
With an average Henry Hub gas price of $6.05 the previous week, he explained, “it was less expensive for refiners to burn distillate fuels and various other petroleum product streams at most refineries.”
The upward pressure on gas prices for the week reflected the market’s “growing realization” that the gas storage deficit had been roughly the same during the previous 12 weeks, Smith said.
“This means that the pace of demand destruction will have to increase if minimum November storage levels are to be achieved,” he said.
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