Heading into the Labor Day weekend with a full tank of gasoline might give holiday-makers a reason to smile, but natural gas bulls staring at the end of summer with storage caverns brimming more than usual have little to cheer.
“In the very near term we believe the combination of cooler temperatures across the eastern half of the U.S. and the upcoming Labor Day holiday will result in increasingly higher weekly storage injections that in turn will keep the pressure on the front of the [Nymex natural gas futures] curve,” Credit Suisse analyst Teri Viswanath wrote in a research note Monday.
Look for the next few Energy Information Administration (EIA) storage reports “to reflect somewhat significant inventory builds that will likely prompt further selling in the [November-December 2009] part of the curve,” wrote Viswanath, who put a pencil to EIA estimates of working storage capacity and additions in an effort to figure out just how big the industry’s gas “tank” is.
Citing an EIA estimate from last year that Lower 48 working gas capacity was 4.17 Tcf with about 92%, or 3.79 Tcf, of that usable by the industry, Viswanath added 86.42 Bcf to account for capacity additions to arrive at a working capacity estimate of 4.22 Tcf, of which 3.87 Tcf is the peak. “Based on EIA’s capacity utilization assumptions and our estimates of new storage additions over the last year, this would establish a 2.2 Tcf storage ceiling for the East Region, 1.16 Tcf for the Producing Region and 0.5 Tcf for the West Region this year,” Viswanath wrote.
The Producing Region, at 92.4% full, has the least amount of room left for more gas during the balance of the injection season, Viswanath noted, an observation that also was made recently by analysts at Barclays Capital. A month ago they wrote that that storage would reach 3,930 Bcf by the end of October and that Producing Region caverns would fill first (see Daily GPI, July 23). “…[F]ull storage in the [Producing] Region could result in very low cash prices for Henry Hub and increased pressure on the Nymex curve,” Viswanath wrote. “Furthermore, based upon our supply-demand projections we see very few options for balancing the market outside of forced production curtailments.”
Analysts at Raymond James & Associates Inc. last week noted producer shut-ins to come. “Obviously, these shut-ins will skew the supply data even more as we move through the third quarter,” they wrote (see Daily GPI, Aug. 18).
More near term, though, the storage build is projected by Stephen Smith of Stephen Smith Energy Associates to decelerate. On Thursday when EIA reports injections for the week ending Aug. 21, Smith wrote Monday that he expects a build of 51 Bcf to be reported. “This compares with a normal seasonal build of 73 Bcf (based on 1994-2003 norms),” he wrote. “The net effect is a 22 Bcf decrease in the storage surplus vs. 10-year norms, to a surplus level of 872 Bcf (vs. a surplus of 363 Bcf one year ago).”
Smith wrote that he expects storage to reach about 4,009 Bcf on Oct. 30, a surplus of 984 Bcf versus 10-year norms and a surplus of 385 Bcf compared with the year-ago period.
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