The natural gas glut is not going anywhere. The gas-oil correlation has wilted, natural gas BTUs in the US cost about a third of oil BTUs, and the EIA estimates this week counted another rise in storage to 2.952 Tcf.
Stephen Schork pointed out that while the year-on-year surplus in the producing area had been narrowing and would continue to do so through August, last summer’s production was book-ended by shut-ins. If the storm activity that ended last season didn’t materialise, historical storage highs could be reached later this year:
The Gulf Coast is currently afloat on a cushion of gas, 1,043 Bcf. For instance, supplies are now 6% or 60 Bcf above the end-of-season (mid November) 5-year interpolated norm and within 3% of the all-time high, 1,073 Bcf. Injections need only average 16% of the 5-year average between now and November to hit this high.
Storage levels also rose in the Eastern region, which is seeing a cool summer, and even with a small draw in storage for the Western region after a warm week, injections between now and November only need to be 35 per cent of the five-year average to hit an all-time high. In fact:
The EIA expects this refill season to end wih a record 3.67 Tcf of gas in the ground. To get there, injections from this point only have to average 78% of the 5-year average.
As Schork notes, traders have duly responded to the continuing build. But what would it mean for prices if the EIA’s figure was exceeded? With US natural gas contracts in the $3 range (see the Nymex chart below) there is little room for slack.