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Wednesday, February 19, 2014

Still More on the Game-Changer Narrative

Note: This update follows my commentary posted two weeks ago documenting emerging changes in the U.S. natural gas market picture.  It is my thesis that the current understanding of supply and demand trends leaves us unprepared for nonlinear events like this winter’s weather.  
--Michael Vickerman


There is nothing quite like a long stretch of below-normal temperatures to stoke the heating fuel markets. Last week (February 13) the Energy Information Agency reported a withdrawal of 237 billion cubic feet (bcf) from inventories, a 12% decline from the previous week’s level.  As indicated in the table below, inventories have shrunk to 1,686 bcf.

It’s a safe bet that this week’s withdrawal number will be even larger than last week’s total, which would send storage volumes below 1,500 bcf. It’s worth remembering that there is at least six weeks left in the current heating season. For comparison purposes, the previous heating season ended in the second week of April with inventories down to 1,673 bcf. This has already been a winter to remember, and it’s not over by a long shot.

It is finally dawning on traders that supplies are the tightest they’ve been since the 2003-2004 winter. Prices have now breached the $5.00/MMBtu mark and may climb some more. However, it will take more than a brief foray into $5.00+ territory to sustain extraction activity at a level that can fully replenish inventories in time for the next heating season. And, as noted in my original commentary, current prices are still low relative to 2007-2008 levels, and are unlikely to induce significant reductions in demand.

As reported in the February 14, 2014, edition of Ravenna Capital Management’s  The Master Resource Report, Conoco Phillips has no immediate plans to jump-start exploration and extraction activity based on recent market conditions.

ConocoPhillips wants benchmark natural gas prices to remain over $5 for as long as two years before the company boosts spending on natural gas, Chief Financial Officer Jeff Sheets said in a Jan. 30 interview.

“We won’t be leaders in getting out there and drilling natural gas,” he said.

I strongly encourage readers of this blog to check in weekly with The Master Resource Report, an educational newsletter written by Jim Hansen of KMS Financial Services. Jim is a keen observer of energy markets and has been tracking the emerging disconnects in the domestic natural gas market since the summer of 2013. 

I’ll send out another update in a week. In the meantime, let's celebrate today's foretaste of spring weather, while Mother Nature slaves away on the next winter storm rolling our way.



Heating Season
Start Volume
(in bcf)
Remaining volume after 6th week of year
Difference
2013-2014
3834
1686
2148
2012-2013
3929
2684
1245
2011-2012
3805
2888
  927
2010-2011
3833
2144
1689
2009-2010
3837
2215
1622
2008-2009
3488
2020
1468
2007-2008
3545
2062
1483
2006-2007
3461
2347
1114
2005-2006
3282
2368
  914
2004-2005
3327
1906
1421
2003-2004
3167
1603
1328

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