More natural gas is being used to create electricity than ever before and this conversion from coal to natural gas happened predominately last year. We should try to predict natural gas pricing along with storage numbers using a very small sampling – 2012 and the first few months of 2013 instead of the traditional 5 year averages.
Natural gas storage, as everyone knows, is a savings and loan of natural gas. We inject in the Spring, Summer and Fall and withdraw in the colder Winter. Part of the reason natural gas is so plentiful is that the United States had the warmest winter on record during the 2012 winter season so withdrawals were very low. But something very interesting happened last summer. We had a hot summer across the US. During the injection season of 2010 and 2011, the industry injected 2.225 and 2.273 trillion cubic feet (tcf) of natural gas during the “savings season”. This past summer only 1.560 tcf of natural gas was injected “saved” as more gas was used to create electricity for air conditioning.
The US still hasn’t had a bad winter in 2013 but at least we are having some winter. The natural gas savings and loan is 300 billion cubic feet (bcf) below the level we were at this same time last year. Storage numbers are almost a week behind so we know the next withdrawal numbers should be favorable to the industry: I won’t bore you with numbers but we could easily leave the withdrawal season 500 bcf lower than we were last year. If March weather continues to be colder through the middle and end of March – that number could be larger.
If the summer of 2013 is similar to last summer in both weather patterns as well as injection volumes; we could enter the withdrawal season with a bank that is low on funds. A couple of large natural gas producers held gas from the market last year for a short period of time but remember that coal fired electrical plants were also being converted to natural gas throughout the year. Also with pad drilling associated with the Shale horizontal drilling process; it will take at least 6 months from the time we start picking up rigs to drill for natural gas until that gas is ready to go to market (if the pipeline infrastructure is in place). The rig count drilling for natural gas was 41% lower than this same time last year just a week ago. During the past week, 7 rigs were diverted from drilling for oil to natural gas so maybe some of the energy companies agree with my thought process.
I expect natural gas pricing to continue upwards for the next couple of months with attention paid to the injection “savings” season more than ever before. More natural gas is being used for industrial purposes as the economy keeps chugging along. A hot summer and an expedited economic recovery could boost natural gas prices to rise rapidly as we near the winter months. I don’t work in the natural gas marketing business as one can tell from my feeble attempt at writing and I am invested in several companies who drill for natural gas so again, this could all be wishful thinking!