Weather Services International (WSI), a division of Weather Central, expects natural gas inventory numbers to largely recover in the coming months due to below-average temperatures in the “northern and central Rockies eastward across the Great Lakes and Ohio Valley regions,” according to its seasonality report on July 21, 2014. Above-average temperatures are expected in the Southeast and Pacific Northwest, with the latter pushing the colder air to the east.
Key Point: Marcellus Region
The Marcellus Shale, the source of 38% of U.S. natural gas and the producer of 15.2 Bcf/d in July 2014, will see lower gas prices in the upcoming cooling season, says Chris Kostas, Senior Power & Gas Analyst at ESAI Power LLC. “Northeast natural-gas prices (i.e. Marcellus shale gas region) should continue to run very soft compared to Henry Hub due to below-normal regional temperatures and increased production,” he said.
ESAI expects the price differential to persist through the month of October. “Increased production and pipeline constraints are causing wide spreads to Henry Hub this year,” said Kostas. The production, in line with lower temperatures, is expected to have a direct impact on natural gas inventory levels. Inventory has been below the five-year average for all of 2014 after a cold winter season slowed production rates and froze pipelines. The most recent inventory report on July 11, 2014, revealed 2,129 Bcf – 25% below the five-year average and 22% below 2013 levels.
Return to Normal?
The report says average 2014 injection rates are roughly 2.3 Bcf/d above last year’s rates. Current year inventory fell by 71% in the withdrawal period between the beginning of January through the end of March. By comparison, average withdrawal for the same time period over the last five years is 42%, and 2013 represented a drop of 49%. However, the higher than normal injection rates, combined with seasonal demand, “Should also allow natural-gas inventories to refill rapidly in August and decrease the deficit to last year’s level,” said Kostas.
ESAI believes inventory levels will finish the injection season above 3,700 Bcf/d, which would place levels roughly 4% below the five year average. If achieved, the injection would represent a 74% increase in storage levels from now through mid-November. According to ESAI, “soft energy demand in the Northeast and Marcellus shale gas regions should continue to pressure delivered natural-gas prices lower and help natural-gas inventories finish the injection season very strong.”
WSI also said another cold winter may be favored this year, but warned its confidence in its long-term forecast is low due to “known unknowns.”
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