Storage levels may be continuing to rise with this warm November weather, but Global Insight consultant Jim Osten warned that Northeast consumers should still expect to see $15/MMBtu wholesale gas prices at the citygate for January bidweek.
“An old LDC friend of mine said recently that every winter about this time before we get that first cold spell people will sit around and say, ‘Maybe we won’t have a winter this year.’ But then when they finally do get the cold spell in late December or January, they say, ‘Yep, winter has come.’ What we are seeing is today’s price based on today’s weather, but I haven’t seen much evidence that the tight supply situation has changed very much,” said Osten.
He noted that although another 61 Bcf of working gas was added to storage this week, bringing working gas levels to 3,229 Bcf, storage levels in the Producing and East regions — which will be the regions most affected by shut-in production this winter — are still lower than storage levels last winter and are only moderately higher than the five-year average.
Working gas in the East now totals 1,918 Bcf, about 3% more than the five-year average but 18 Bcf less than the same time last year. Producing region storage levels are 2% above the five-year average but 9% below levels last year.
The West is the only region with more gas in storage than at the same time last year, 439 Bcf compared to 423 Bcf, but that won’t help any of the consumers impacted by Gulf gas production shut-ins. About 4 Bcf/d remains shut in with cumulative lost production at 422 Bcf.
Osten said he’s expecting damage to Gulf infrastructure will keep about 250 Bcf off of the market this winter. Another week of net injections will help offset that lost supply but the market will remain tight particularly during a cold spell in the Northeast.
Osten believes next week will bring the last net injection of the season with another 45 Bcf of working gas added to storage. That will put storage at 3,274 Bcf. “We look at the monthly production reports out of Texas, the Rockies and Canada and there’s hasn’t been a whole lot of change in those,” he said. The supply situation will remain a challenge.
Consultant Stephen Smith, however, said this week that he has lowered his short-term price projections slightly because of the warm weather and continuing rise in storage. He expects gas production shut-ins to fall to 2.25-2.75 Bcf/d by the end of December, and he’s forecasting a January Henry Hub bidweek price under $11. The January futures contract is currently at $11.91. January futures closed at $12.06 last week, down from $13.38 a week earlier. Meanwhile, swing prices have collapsed to $5 below first-of-the month indexes, leaving many in the market wondering how much lower prices will go.
“Based on the best guess on the weather that you can come up with now, which is two more warmer than normal weeks and then more toward normal weather, I think it says we’re probably expecting…that there’s about $1 of fluff [in current January futures],” said Smith. “In the scenario we are talking about, I still think January futures have to come down about $1.00-1.50. If we get four more mild weeks, then it will [come down even more].” Rather than $15 gas in the Northeast in January, Smith is predicting New York Citygate prices probably will be around $1 over the Henry Hub, or about $11-$12.
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