Natural gas prices slide on improved storage levels

Adam WilmothThe Oklahoman(MCT)

After 12 straight weeks of above-average natural gas storage gains, prices are slipping along with concern about possible shortages this winter.

Despite the gains, however, the country is still expected to begin the winter with storage levels lower than in recent history, according to a report by the U.S. Energy Information Administration.

Like many natural gas price trends, the current decline is fueled largely by weather, Oklahoma City natural gas price marketer and producer Tony Say said.

“Demand is down a bit mainly due to weather,” said Say, president of Oklahoma City-based Clearwater Energy. “We’ve had a very mild summer throughout the central and eastern part of the country, which has led to record storage injections.”

A strong cold front forecast for much of the country over the next week is expected to further drive up storage and drive down prices.

The price of natural gas closed at $4.15 Monday on the New York Mercantile Exchange. The price was unchanged on the day, but down from $4.71 on June 16.

Some hedge funds appear to be among the natural gas price bears. Funds reduced their net-long positions 8.1 percent last week, according to the U.S. Commodity Futures trading Commission.

The country’s storage levels rose 93 billion cubic feet last week to 2.022 trillion cubic feet as of July 4, according to the EIA. Despite the gain, storage levels remained more than 24 percent below year-ago levels and almost 28 percent below the five-year average.

While the country’s natural gas storage picture has improved over the past two months, stocks are expected to enter the winter cooling season with about 3.43 trillion cubic feet in place, about 380 billion cubic feet below the level at the same time last year, according to the EIA’s most recent forecast. The country withdrew almost 2.1 trillion cubic feet from storage last winter.

“I don’t think 3.5 (trillion cubic feet) is a comfortable number,” Say said. “I’m not saying we are going to have any type of shortage, but it will be interesting to see what winter brings. I think we have ample supplies, but our demand continues to grow. It all boils down to what happens with the winter weather.”

While storage levels are relatively low, production levels are at historic highs. Production gains, however, might not be very helpful during an especially cold snap, Say said.

“In the dead of winter, we will have a lot of freeze-offs (which prevents a well from producing) and deliverability issues,” he said.

EIA expects that the Henry Hub natural gas spot price, which averaged $3.73 per million British thermal units (MMBtu) in 2013, will average $4.77 per MMBtu in 2014 and $4.50 per MMBtu in 2015.