Bentek
Mild weather exacerbates supply-long natural gas market

Friday, January 13, 2012

Contact BENTEK for more information about our new Market Alert:  Production, Storage to Challenge 2012 Price Floor

Mild weather across much of the U.S. this winter has left record-high natural gas inventories in storage at a time when production levels continue to soar. BENTEK’s new Market Alert reports that despite 2 Bcf/d more demand per degree in 2011 and record power burn, just two months of mild weather have erased the storage deficit, leaving a 500-Bcf and growing surplus over the five-year average. These fundamentals will have lasting implications for U.S. natural gas prices well into 2012; BENTEK expects gas prices to drop to $1 handles for periods later this winter and again in the fall.

Due to lagging demand in response to mild weather, Henry Hub cash and prompt month futures prices have fallen more than $0.80/MMBtu since Nov. 1. January’s month-to-date spot price average is the lowest level for January since at least 2004. BENTEK reports low storage withdrawals in early winter and resulting record-high inventories will mean extreme downward pressure on prices in March, when cycling requirements will force withdrawals regardless of demand or pricing economics. As these factors exacerbate the supply-long natural gas market this year, a new near-term price floor will be set.

BENTEK’s new Market Alert Production, Storage to Challenge 2012 Price Floor provides an overview of natural gas fundamentals analysis for 2012, including how record-high storage inventories and strong production will affect prices.

Key Takeaways:
• The natural gas market is poised to find a new, near-term price floor in 2012, with Henry Hub cash and other supply-area prices bound for $1 handles as early as late winter as mild weather has exacerbated a supply-long market.
• Despite 2 Bcf/d more demand per degree in 2011 and record power burn, just two months of mild weather have erased the 2011 storage deficit, and have left a 500-Bcf and growing surplus over the five-year average.
• The low withdrawals in early winter and resulting record-high inventories will mean extreme downward pressure on prices in March when storage cycling requirements will force withdrawals, regardless of demand or price economics.
• Given continued production growth and normal demand, storage inventories will test peak working gas capacity of 4.2 Tcf and set a price floor by fall.

For ongoing analysis on U.S. natural gas supply, demand, storage and pricing, please read BENTEK’s The Market Call and Forward Curve Quarterly.