With the weather expected to be hot through much of the summer, Stephen Smith Energy Associates projects that less natural gas will be going into storage than in past years, leaving little surplus gas to act as a buffer against hurricane-related problems and high gas prices.
The Natchez, MS-based energy investment research firm estimates that the week ended July 1 saw a build in natural gas storage inventories of 67 Bcf, which was 24 Bcf less than the normal seasonal build of 91 Bcf. As a result, storage is expected to increase to 2,190 Bcf from 2,123 when the Energy Information Administration (EIA) releases its storage numbers this Thursday.
In explaining the smaller-than-anticipated buildup, Stephen Smith noted that last week "was the hottest single week since the summer of 2003." This 67 Bcf build vs. a normal 91 Bcf build "implies that 'seasonal storage vs. normal' will decrease by 24 Bcf, from 376 Bcf to 352 Bcf," according to Stephen Smith. "If this projection is correct, this would represent a decline of 68 Bcf in storage surplus over the last four weeks."
With the hot weather forecasted, Stephen Smith predicts there will be a storage build of 85 Bcf for the week ended July 8, still less than a normal build of 93 Bcf for this time of year. This would cause the storage surplus to decline by 8 Bcf to the 344 Bcf level, according to the energy investment research firm.
The company anticipates a storage build of 70 Bcf for the week ended July 15. Since the normal seasonal build is 87 Bcf, the storage surplus would decrease by 17 Bcf to 327, it said.
"If our projection of 327 Bcf...for July 15 is correct, the gas storage surplus will have declined a total of 93 Bcf from a level of 420 Bcf on June 3...With the NWS [National Weather Service] forecast for July/August/September moderately warmer than normal weather in the South and West, this surplus is likely to be reduced further by Oct. 1. But so far this summer, actual CDDs [cooling degree days] have been coming in higher than forecast. If this pattern continues, then there would be no storage buffer left to handle any hurricane-related problems," Stephen Smith said.
"The 2005 hurricane season is forecast by the NWS to have greater than normal activity. This anticipation, combined with still fresh memories of the damage caused by [Hurricane] Ivan, should tend to keep prices a bit higher than otherwise expected."
The firm sees Henry Hub September bid-week at $7.25-7.75/MMBtu. This estimate assumes that West Texas Intermediate will stay in the $55-60 range for the next seven to eight weeks.
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