Tuesday, January 31, 2012
Winter may not be over yet, but so far seasonally mild weather across much of the U.S. has left record-high natural gas inventories in storage at a time when production levels continue to climb. BENTEK’s The Market Call reports that these dynamics could push storage levels to peak working gas capacity of 4.3 Tcf by the end of this October, given normal summer demand. As a result, BENTEK expects natural gas Henry Hub spot prices to average $1.94 in September of this year.
BENTEK’s recently released Market Alert, Production, Storage to Challenge 2012 Price Floor, provides additional analysis, revealing that low storage withdrawals in early winter and resulting record-high inventories will mean extreme downward pressure on prices in March and again later this fall. At this time, cycling requirements will force withdrawals regardless of demand or pricing economics. In this weak price environment, the ability of producers to reduce output is limited. Without significant demand growth, U.S. oversupply will reach an operational constraint by the end of summer.
Key Takeaways from BENTEK’s Production, Storage to Challenge 2012 Price Floor:
• 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 later winter as mild weather has exacerbated an oversupplied 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.
For ongoing analysis, BENTEK’s The Market Call provides a quick and simple view of the near-term natural gas market, including a sector-by-sector analysis of the underlying factors that drive prices. This monthly publication offers the crucial insight needed to make forward-looking decisions in the natural gas market.
BENTEK’s The Market Call and Production, Storage to Challenge 2012 Price Floor are now available.