Energy Solutions, Inc. Reports on Natural Gas Fundamentals

Fundamentals for natural gas are bearish. Supplies are ample and continue to grow. According to the EIA February 7, 2012, Short-Term Energy Outlook, in 2011, total marketed natural gas production in the U.S. experienced its largest year-over-year volumetric increase in history. Meanwhile, demand has changed little because of ongoing economic weakness. Natural gas production levels have continued to surge even as the drilling rig count has fallen. And despite the announcement by several producers of production curtailments, there are no signs on the immediate horizon to indicate that production levels are tapering off.

Storage inventories are projected to be at record levels on April 1, 2012, and initial summer weather forecasts project that temperatures will be normal or below normal, which will reduce reliance on natural gas-fired electric generation to meet air conditioning needs. By November 1, 2012, natural gas storage inventories are expected to again approach record levels. In fact, several analysts project that by September or October 2012, natural gas storage inventories will be so full that there will be a heightened potential of forced production curtailments simply because there will be no place to go with additional natural gas. If this occurs, it will be very bearish for natural gas prices, and market conditions could cause spot-market natural gas prices to fall to below $2 per MMBtu temporarily.

Relative to the upcoming hurricane season, WSI chief meteorologist, Todd Crawford, says the North Atlantic Ocean has cooled to levels unobserved in a decade, and as a result, he expects a relatively mild 2012 tropical storm season. Conversely, the Colorado State University forecasting team of Philip Klotzbach and Dr. William Gray say the Atlantic thermohaline circulation (THC) could potentially remain above average and that could lead to above-average storm activity. However, these are just preliminary forecasts; each will be revised and refined as spring approaches. Plus, while hurricane activity had a dramatic impact on natural gas prices in 2005, tropical storm-related production disruptions have been reduced as more natural gas production has moved onshore. In turn, tropical storms now seem to have less of an impact on natural gas prices.

Any near-term increase in demand is expected to come from coal-to-natural gas fuel switching, but that switching is only going to take place if natural gas prices remain below $3 per MMBtu. With the year-over-year storage surplus, the natural gas industry has the ability to accommodate increases in natural gas demand from the electric power sector. Therefore, there is little concern over any sustained major price rallies this summer.

For the summer of 2012, the price of coal is expected to create a price floor for natural gas prices. However, even with more coal-to-gas fuel switching, fewer Canadian imports, and a slight increase in industrial natural gas demand, both 2012 and 2013 are projected to be years where natural gas supplies continue to outpace demand. By late-2013 or 2014, there will be evidence of a tightening supply/demand balance caused by both production curtailments and increases in demand, primarily from the electric power sector.

Natural Gas Price Outlook provides you with the tools needed to implement a cost-effective natural gas strategy for 2012 and beyond.  This 59-page, comprehensive analysis evaluates numerous price drivers and is a must-read for those who want answers to what the future holds for natural gas prices.  To learn more and secure your copy, visit http://www.naturalgasoutlook.com.

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About Energy Solutions, Inc.
Formed in 1996, Energy Solutions, Inc. is independently owned. With more than 50 years of experience in the natural gas industry, our team focuses on natural gas prices and in helping businesses improve their internal processes for the purchase of natural gas.