Storage Lingers as Winter Wanes
As the winter that wasn't winds down, gas in storage will have
to come out like a lion during March if capacity holders are to
meet cycling requirements. Even if temperatures remain warmer than
normal the market should expect six weeks of relatively strong
withdrawals because many storage capacity owners must bring levels
down to about 25% full.
Right now levels nationwide are about 55% full, according to the
American Gas Association, following a week when 97 Bcf came out of
the ground. A year ago at this time, storage was 42% full. The
current year-over-year storage surplus is 442 Bcf.
In order to exit the current heating season with the same amount
of stored gas as last year (1,006 Bcf), the next five weekly
withdrawals will need to average about 157 Bcf, noted PaineWebber
in a research note.
Speaking last week to the National Association of Regulatory
Utility Commissioners (NARUC) in Washington, D.C., J. Michael
Ripley, director of gas operations for the Columbia LDCs, expressed
concern about the current high level of gas in storage and
difficulty LDCs will have meeting their cycling requirements come
LDCs have attempted to minimize the impact of 16%
warmer-than-normal temperatures this winter by exercising swing
options in their supply contracts, curtailing gas buying, and not
withdrawing gas from storage. Where possible, they've packed more
gas in the ground, too. Ripley said February, typically the coldest
month, saw net injections at Columbia Gas of Ohio.
"I feel safe in saying our position probably isn't a whole lot
different than a lot of other local distributors." During the
1993-94 winter at the same point in time, storage inventory at
Columbia of Ohio was 27% full. As of Feb 17, Columbia had "47% of
our inventory still remaining in the ground. But we still have a
turnover requirement that requires our inventory to be down to 25%
full or less by April 1," Ripley said. "We're going to be
challenged to meet that if we have weather that is warmer than 10%
warmer than normal in the month of March."
At least one trader speculates utilities will use storage gas
next month in order to hit minimum withdrawal requirements and
avoid penalties. "It is a bull market right now, but with a floor.
People will buy cheap gas but only to a certain level before they
hit their storage gas. We're seeing this floor during the month [of
March] at about $1.65. While a lot of the gas in storage is $2.00
gas, it is probably cheaper for utilities to use it up and meet
their requirements, rather that paying the penalties." Another
trader said storage capacity holders not forced to empty out in the
spring should be injecting cheap gas now to sell in the forward
futures months. That's what another trader was doing. And someone
else said the market has been widely aware of the storage overhang
for so long that it's probably been factored into prices, which
won't go much lower because of it.
Storage caverns will have to do some heavy puffing if levels are
to get down to where they were at the end of last year's hearing
season, about 157 Bcf/week, noted PaineWebber. "Given the mediocre
weather outlook and the fact that last year's average comparable
going-forward weekly withdrawals averaged 68 Bcf, it is likely
that a significant amount of the current 442 Bcf storage surplus
will remain come March 31."
It is apparent from a transportation report earlier this month
by ANR Pipeline that it has been carefully eyeing storage levels on
its system. "Abnormally high storage inventory balances and overall
storage operating concerns" caused the pipeline to continue
limiting interruptible injections under rate schedules DDS and MBS.
These customers were told they have until April 1 to draw down
existing account balances to zero. Following that announcement, a
Midwest trader said the move by ANR was unusual and that the pipe
usually just halts injections.
At the end of January, ANR entities ANR Pipeline, ANR Storage,
Blue Lake Gas Storage Co., and Steuben Gas Storage Co. combined had
customer storage of 129.7 Bcf (62% full), compared to 104.7 Bcf
(50.3% full) a year earlier, said ANR spokesman Joe Martucci.
For those fretting over excess gas in the ground, today's
Salomon Smith Barney (SSB) Weekly U.S. Natural Gas Storage
Withdrawal Forecast brings some welcome news. SSB lowered its
end-of-season storage forecast by 15 Bcf from last week's forecast
to 1,408 Bcf. Still, that's 349 Bcf above last year's end-of-season
level and 547 Bcf above the four-year average. "If our forecast
overhang remains this large, we would expect producers to lower
prices in order to induce additional consumption and allow storage
withdrawal rates to pick up. We experienced 12% warmer-than-normal
weather last week. The draw of 97 Bcf was in line with the 98 Bcf
we would have forecast based solely on the weather and was 15 Bcf
more than our forecast, which had assumed 25% warmer-than-normal
weather and an additional 20 Bcf of non-heating driven demand." The
previous SSB forecast, dated Feb. 19, projected end-of-season
inventory of 1,423 Bcf.
Joe Fisher, Houston (Other NGI staff members contributed to this