Polar Vortex

　

If you live in the Northeast and heat your home with natural gas, let me offer my condolences now. Those bills will be killer...

Natural gas futures for February traded as high as $5.40 per Mcf (thousand cubic feet) yesterday. In mid-November, this same contract sold for $3.50.

But that's nothing...

Prices have gone as high as $120 per Mcf on the spot market recently. Last week, a nuclear plant in Maryland shut down when snow and ice caused an electrical problem. Power companies had to turn to natural gas, and they got gouged — big time.

Other price spikes of $56.59 and $72.43 were reported.

And the prices could have been worse given that power companies can't just shut down...

Flush to Flat

For the last few years, we've had too much natural gas. So much gas came on the market that prices fell to under $2 per Mcf. And companies that had invested heavily had to keep bringing more gas to market just so they could pay the bills.

Bigger companies started to shut in production and sell off wells at a loss just to raise cash that could get reinvested in oil.

Still, storage facilities were brimming with natural gas — until the polar vortex showed up...

Supplies are already down 20% from where they were a year ago. And the record for use was set just a couple weeks ago, on January 7.

The problem is the cold weather is affecting production. Companies aren't pumping enough to offset demand, so supplies are falling.

Record amounts of natural gas are being pulled out of storage.

This is a sea change for the fuel. We may be entering a new pricing environment for natural gas.

Bull Market for Gas

Last year at this time, there was about 3 Tcf (trillion cubic feet) of natural gas in storage. This year, we have 2.4 Tcf — 600 Bcf less.

Now, last year between February and April, we used 1.35 Tcf. By mid-March, there was 1.7 Tcf in storage. That's in line with 5-year averages.

This year, it's going to be different.

If companies continue to struggle to replenish supplies and demand continues to surge, we could end the winter season with 1.1 Tcf of gas in storage — or less. That hasn't happened since 2003.

You may be surprised to hear this, but we don't use significantly more gas in America than we did 10 years ago. That will change in time as we see more natural gas powering fleet vehicles, trains, and power plants.

But right now, it's looking highly likely that we will go into the summer months with a 10-year low of natural gas supply. And when supply is low, prices tend to go up...

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Replies to This Discussion

Permalink Reply by J L on January 29, 2014 at 6:55am

Al, can you provide a citation for this article?

Permalink Reply by Al Cramblett on January 29, 2014 at 9:11am

 It's from a paid subscription service I use and cannot provide the name due to GMS site rules. Consider the contents to be "one experts"  abbreviated view.  I tend to think there is value in what was stated. Time will tell. As stated below, it wasn't that long ago that NG was in the $14-15 range.  Prices will increase as additional use occurs to include LNG exports.

Permalink Reply by Mark McGrail on January 29, 2014 at 8:10am

Al,

Won't this induce companies to bring shut in wells back on line ? If so won't the new supply bring supplies back to traditional levels ?

Permalink Reply by Al Cramblett on January 29, 2014 at 9:12am

Yes, when prices go above $8.00 Mcf.

Permalink Reply by owner on January 29, 2014 at 8:37am

Current natural gas prices are relatively cheap compared to prices paid throughout the 2000's.  Prices were over $14 per Mcf during 2005 and over $13 per Mcf in 2008!!!   Those numbers do not take into account the time value of money which would show a greater discrepancy!!  The Marcellus and Utica boom has significantly lowered natural gas prices which have benefited consumers and industries!

Let Obama continue to shut down coal fired power plants and we will really see a shortage of natural gas....and electricity!!!

Permalink Reply by stephen weiss on January 29, 2014 at 8:53am

Seems pretty unlikely that we will see a shortage of natural gas in the lifetime of anyone reading these postings. And electric utilization in the US has decreased in recent yeaars, in part due to conservation efforts. The potential problem for electricity is more related to the distribution grid.

 

I think many of us should be pleased as US electric generation continues to shift from from coal to natural gas. Certainly those of us who are landowners. Or those of us who breathe.

 

Permalink Reply by Al Cramblett on January 29, 2014 at 9:14am

Whole heartedly agree!

Permalink Reply by Elnathan Cory on January 29, 2014 at 4:43pm

Absolutely!

Permalink Reply by Harry E. Rose on January 29, 2014 at 9:32am
Suprise!!! Dominion is short of gas supply now in Canton, Ohio. They have reduced volumne of gas to churches already.
Permalink Reply by JK on January 29, 2014 at 1:22pm

I was waiting to hear this news.

Now maybe CHK will turn the regulators off on our wells and allow them to flow.

Stay tuned..

Permalink Reply by Joe Bezel on January 29, 2014 at 5:52pm

Good post, Al.  Propane has shot up, too.  I filled my tank late last summer for $2.44 per gallon; I had to have a refill a few days ago, at the market price of $4.76.  Yikes!  I mentioned to the delivery driver that I heard there was a propane shortage due to the harsh winter.  He confirmed that, saying his company was very low and waiting for a delivery.  I asked him where it was coming from; he replied, "Texas."  I pointed to the top of the towers of the Hopedale fractionator visible over some trees and mentioned the processing plants in Cadiz and Scio and asked if his company had ever thought of shopping locally.  It does seem odd to import propane from Texas into Harrison County, Ohio in 2014.  Maybe MarkWest only sells out-of-state?  I don't know.

Permalink Reply by Al Cramblett on January 30, 2014 at 6:18am

During last week's Polar Vortex the supplies of petroleum distillates decreased by 4.6 million barrels. As you stated, propane supply is at a critical level. The two US petroleum distribution centers are located in southern states. This is primarily because most petrochemical processing plants are located in that area until NOW. In May of 2013, the spot price  of propane was around $.90 per gallon. It is now five times that price which is unfortunate for the consumer! I believe the situation will be different next year as a result of the construction of additional petrochemical facilities in Ohio and Pennsylvania.

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