The high average price paid for the gas that now sits in storage facilities across the country will put storage capacity holders in a real tight spot this winter if prices average less than $4.65 at the Henry Hub, according to Scott DePasquale, natural gas analyst at Energy Security Analysis Inc. (ESAI). DePasquale expects storage operators would suffer significant losses at such lower than expected price levels.

“Dangerously low April natural gas storage levels have been replenished since the springtime, but at very high average prices near $5.18/MMBtu (April-October) in the Producing Region, and closer to $5.80/MMBtu in the Consuming East,” DePasquale said. “It is likely that storage operators will carefully plan their release of supply from the winter reserve base, postponing sales until prices are high enough to offset the injection costs, which could leave more than 40% capacity in storage by springtime.”

Despite falling spot and futures prices, however, ESAI believes the ongoing gas production struggle will keep a firm $3/MMBtu floor under the market. Furthermore, the precarious balance between production levels and demand will make the winter market more sensitive to changing weather patterns and more volatile, said DePasquale.

“Unusually cold temperatures would support prices above $4.50/MMBtu. However, considering healthy storage levels, any signs of a warmer than average winter could send cash and financial markets spiraling toward $3.00/MMBtu,” he said. “Mild weather could also trigger aggressive short-side fund activity.”

ESAI forecasts regional supply relief for the Northeast in particular this winter, with Cove Point and Everett expected to aggressively take LNG shipments. “As such, any unexpected declines in heating demand levels could push significant volumes of gas back to the Producing Region — reducing both regional price and basis pressure further.”

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