US gas storage glut feared as producing region facilities keep filling up
Houston (Platts)--8Apr2011/514 am EDT/914 GMT
Natural gas storage inventories in the US producing region hit another all-time high in the week that ended April 1, creating worry among some traders and analysts that facilities could reach capacity well before the refill season ends November 1.
EIA defines the region as Alabama, Arkansas, Kansas, Louisiana, Mississippi, New Mexico, Oklahoma and Texas.
"Injection season is going to be bloody," a trader remarked Thursday after the US Energy Information Administration reported that producing-region stocks rose by 2 Bcf for the week that ended April 1 --- the fourth consecutive weekly net injection there. Overall, EIA reported a 45-Bcf nationwide withdrawal for the week.
"The record producing region storage figure is largely due to shale [play] production and the producing region drop-off in heating degree days in the Midcontinent by the end of the inventory week," said Societe Generale analyst Laurent Key.
With traders and analysts noting that the prolific Barnett and Haynesville shales are now producing some 5 Bcf/d apiece, according to EIA estimates, some are convinced that the resulting supply glut will test storage capacity earlier than ever.
None of the analysts ventured to forecast when that might occur, but a Gulf trader said he wouldn't be surprised if it were sometime in September.
That, the sources said, means some storage operators are likely to issue strict daily injection limits or even force withdrawals to maintain system integrity -- placing even more gas in a oversupplied market and putting downward pressure on summer prices.
Bentek Energy analyst Maria Sanchez expects overall US storage to exit the injection season at an all-time high of 4 Tcf. "The producing region is going to be a big contributor to that," she said. Bentek is a unit of Platts.
Sanchez said, however, that several storage expansions and new facilities are coming online this year and next, adding to overall capacity and possibly averting a storage overload.
Platts data shows there is currently some 2.65 Tcf of storage capacity in the producing region. About 103.8 Bcf in expanded capacity is expected to come on stream this year, with another 178.8 Bcf due in 2012.
Weather is going to be the ultimate determinant of how quickly the producing region's storage fills up, traders and analysts said.
Several traders have already taken significant positions in the futures market, betting that increased cooling demand will put a significant dent in overall stockpiles this summer, sources said.
A regional risk manager said several banks and hedge funds were heeding independent meteorologists' calls for a sweltering summer that could result in a shortfall of gas come the peak of next winter. Those players, the risk manager said, have effectively translated that belief into a narrow October 2010-January 2011 spread position on the NYMEX futures strip.
A regional financial trader concurred. "There's been a bunch of call spread options on that spread this year already," he said.
The average of that spread to date has been 68 cents/MMBtu, an analysis of NYMEX futures settlements shows. On Thursday, that spread was 59.6 cents.
Meanwhile, EIA's report of a 45-Bcf draw was below consensus expectations ranging from 49 to 53 Bcf. A year earlier, there was a 29 Bcf injection.
In the same week of 2010, EIA reported 1.665 Tcf in storage. As a result, the 12-Bcf deficit to the year-ago level grew to 86 Bcf, while the 68-Bcf surplus to the five-year average of 1.569 Tcf shrank to 10 Bcf.
EIA reported a 52-Bcf withdrawal in the East, leaving inventories at 616 Bcf, compared with 750 Bcf a year ago; an injection of 5 Bcf in the West saw inventories rise to 221 Bcf, compared with 292 Bcf a year ago; and a 2-Bcf injection in the producing region pushed it to 742 Bcf, compared with 623 Bcf a year ago.
Inventories now are 87 Bcf below the five-year average of 703 Bcf in the East, 23 Bcf below the five-year average of 244 Bcf in the West, and 119 Bcf above the five-year average of 623 Bcf in the producing region.
--Samantha Santa Maria, samantha_santa_maria@plats.com
--Stephanie Seay, stephanie_seay@platts.com
--Adam Bennett, adam_bennett@platts.com
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