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Analysts Suggest 'New Normal' for Storage

Natural gas storage operators breathed deeper than ever during this year's injection season, and while many worried that capacity would be breached, that was not the case. Analysts at Barclays Capital suggest the industry has reached a "new normal" for season-ending inventories.

Mulling earlier Energy Information Administration (EIA) estimates of storage capacity (see NGI, Sept. 7), Barclays analysts pegged "true capacity" of storage at around 3.9 Tcf. In November the industry injected gas throughout the month; the only other time this has happened was in 2001. The last build of the month, reported Dec. 3 for the week ending Nov. 27, was 2 Bcf, bringing the end-of-injection season total to 3.84 Tcf, which is 487 Bcf more than the five-year average.

Reaching such a high inventory number without incident shows that storage infrastructure is more flexible than the market thought, the analysts said.

"There are a couple of possible reasons for this elasticity," they said. "The first is that the shortcomings in EIA's [capacity estimate] methodology understate actual capacity to inject gas. Second is that any facilities that came on line since April 2009 would not have been counted in the [EIA's] August survey, also resulting in an underestimation. Finally, a great deal of the capacity additions in recent years have been salt caverns, which on average have greater flexibility to withdraw and inject."

Since 2005 gas storage developers have been growing capacity at a rate of about 60 Bcf a year, by Barclays' estimate. "A record number of additions are set to be built this year, with most of them already completed or under construction," the analysts noted.

They suggested that capacity could grow to 4-4.5 Tcf in the coming years, with much of the capacity being added in the Producing Region, where 80% of the new projects from 2010 to 2015 are sited.

"...[T]he extra storage is not a bad idea," the analysts suggested. They predicted that next year's season-ending build will reach 3.83 Tcf. "While from a storage capacity standpoint this should no longer be perceived as catastrophic by the market, it should still serve as a cap to the upside potential for prices."

Last week saw the first storage withdrawal report of the winter when EIA reported that 64 Bcf was pulled from caverns during the week ending Dec. 4, beating industry expectations of a roughly 40 Bcf draw and giving bulls a reason to rally.

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