As weather demand has reduced natural gas storage to 5% below the 5 year average, the NYMEX prompt-month contract has rallied over $1.24/mmbtu to $4.42 from its low of $3.15 on February 15th.  This realignment of storage, now back to within historical ranges, has left one third less natural gas in the ground than this time last year and has significantly reduced the risk of an oversupplied market.  Therefore, the pace of injections this spring and into summer, relative to both last year and 5 year averages, will set the tone for any market pullback on NYMEX.  The colder than normal weather in late March and first half of April have led to a slower than normal start to natural gas injection season, but the coming weeks will make up for that lag.

To avoid natural gas storage levels that would be even lower in April 2014 than we’re currently experiencing, the market needs to have confidence in the ability of storage to reach adequate enough levels to potentially support a 2014 winter that could be colder than the 10 year normal.  As of the week ending April 19th, storage stands at 1,734 Bcf, well below year ago levels and below the 5 year average.  To achieve end of October storage that is equal to the average of the past 5 years of 3,686 Bcf, injections need to average approximately 68 Bcf per week during the duration of Apr-Oct.  This would be about 22 Bcf more than year ago levels, which only averaged 47 Bcf.  Additionally, the pace of injections would need to be higher to achieve 3,800 Bcf, which would be closer to levels of October 2012.…
Continue reading >>