Posted on 02/20/2014 9:18:34 AM PST by topher
Summary
Working gas in storage was 1,443 Bcf as of Friday, February 14, 2014, according to EIA estimates. This represents a net decline of 250 Bcf from the previous week. Stocks were 975 Bcf less than last year at this time and 741 Bcf below the 5-year average of 2,184 Bcf. In the East Region, stocks were 364 Bcf below the 5-year average following net withdrawals of 129 Bcf. Stocks in the Producing Region were 277 Bcf below the 5-year average of 806 Bcf after a net withdrawal of 91 Bcf. Stocks in the West Region were 100 Bcf below the 5-year average after a net drawdown of 30 Bcf. At 1,443 Bcf, total working gas is below the 5-year historical range.
Natural Gas prices are sitting at $6.10+, which is considerably higher than the $4 price it had been.
That means that Natural Gas is about 50% or more higher right now.
We start the season with about 3.8 trillion cubic feet, so getting close to 1.2 trillion cubic feet left in storage while we still have about 4 weeks of winter is not very good.
However, as temperatures do get warmer, natural gas is pumped into storage.
The question now is how soon that will happen, and if there will be much Natural Gas left before the cold weather is over...
Actually the natural gas price has been in the low 3’s until very recently, so the price could be double of what it was if the cold snaps continue much longer. It looks like storage could reach lower levels than it has in many years. As I recall it was price das high as $11 in 2007.
Spot Henry Hub was over $14.00/MMBCF at least twice in 2005, after Katrina, Wilma, et al, once in September, the other time in December. Chicago Gate has been above $11.00 at least 3 times since 2000, first time being (iirc) in late Dec 2000, when front futures first traded above $10.00.
My belief (and my more than modest-sized bet) is that NG will fall significantly towards the spring. Painful in the interim, yes.
We’re not far off from the “shoulder months” when there is decreased natural gas usage and net injections increase dramatically.
Since gas prices hit the cellar a few years back because of the surplus glut, most drilling has been for oil or liquids rich gas, as gas prices were so low that a company couldn’t recoup its costs for gas drilling. However, with the volume of gas that can be produced from a horizontal well a lot of gas can be brought onto the market (and into storage) these days.
My understanding is that we have an immense surplus of nat gas but lack the infrastructure to transport it and the facilities to store it.....meaning, from all the new wells being drilled/fracked. Nat gas is a byproduct of virtually any drilling operation. Some companies are actually pumping NG back into the ground because they cannot vent it, burn it, nor store it.
If you have a different opinion or understanding, I welcome it.
“Some companies are actually pumping NG back into the ground because they cannot vent it, burn it, nor store it.”
I haven’t heard that. In light of the low gas prices previously prevailing, it was my understanding that some operators might not make the investment to construct gathering lines and pipelines to get gas to market and therefore would leave their gas wells shut in to wait for higher prices.
The only reason to vent or flare gas would be in a well producing both oil and gas where there is lack of a market for the gas but you want to produce the oil.
The only reason I am familiar with for injecting gas (other than into a storage field) would be to keep the reservoir pressured up for greater ultimate production of oil.
“...where there is lack of a market for the gas but you want to produce the oil.”
But this is the quandary. There’s a market for NG virtually anywhere, but my understanding is that NG is a byproduct of virtually *any* hydrocarbon drilling operation. And not in trace quantities. If they are getting oil, they are getting NG. As well as some number of other liquids, napthas, etc; They can accumulate the napthas in a reasonably-sized tank and truck them away from time to time. But they cannot, lacking a pipeline, lacking a high-volume NG compressor (a serious piece of equipment, NG does not liquefy like propane, it needs 3000+ psi and massive cryogenic-grade refrigeration to be liquefied) get the NG outta there, to market or to storage.
I agree natgas price will fall in the spring injection season. Lessons learned from the last couple price cycles and the many wells choked back from full potential will moderate radical price swings up and temper sustained $5+/mmscf this time around. There is a floor to storage though that if exceeded, storage reservoirs get damaged by water influx. The gas storage operators might be getting close to risking decreased future capacity or higher injection costs if they pull it too down too low. I don’t know what that bottom storage level number is. EIA spreadsheet does not go back long enough to really see any consistent absolute bottom line.
Resource re-allocation to oil and rich gas with liquid yield basins might prevent the level of replacement well drilling in the dry gas basins to make up the need. $4 floor in 2014? maybe.
My employer’s analysts more often get it wrong than right. They are saying price will not make a serious rebound anytime soon, not in 2014 anyway. $6 today is already a major rebound, if followed by a $4 summer floor, it’s definitely a solid bump from $2-$3.50 for years.
There is spare pipeline capacity in dry gas producing basins, built up in the 2005-2008 price run up. Projects in progress continued, but a lot of new un-started lines got nixed. Then the second price crash of 2010 came along and curtailed drilling severely in those basins. Normal expected production decline rates ensued and have for a couple years now, leaving room to get rates back up quickly.
Where the natural gas transport infrastructure is lacking badly today is in oil production basins not keeping pace with the overall rate of increase in production. You can truck that oil around, not the natural gas. they are jumping to catch up though. You can burn money faster flaring gas than you can build a pipeline to sell it, even at depressed gas price. Most states limit how much and how long an oil well can flare, so if you hit the limit, you can’t produce your oil either.
Just think if you could build a plant to compress NG in say three semi trucks and drive up to a wellhead and take it away. You could possibly get that NG for free, but even so, the contraption you built would be a million or more dollar affair and would never pay without massively higher priced NG...and then you wouldn’t get it for free.
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