News / Business
Natural Gas Prices Decline on Record Storage
Natural gas storage inventories have set a new all-time record of 3,589 Bcf – surpassing the prior record of 3,565 Bcf hit in October 2007. With six weeks remaining in the injection season, inventories are likely to test maximum capacity and this potential is pushing natural gas prices lower.
By the end of Thursday, October 1, 2009, the November 2009 natural gas NYMEX contract lost more than $.30 per MMBtu from where it was trading on Wednesday. The bigger story, however, are the price declines for natural gas NYMEX contracts into late-2010. Any upward price momentum stalled dramatically on Thursday as all eyes focused on the release of the weekly Energy Information Administration storage inventory report, which showed that inventories have now reached 3,589 Bcf.
“With six weeks remaining in the injection season, natural gas storage inventories are likely to surpass 3,800 Bcf this year,” says Valerie Wood, President of Energy Solutions, Inc. “Historically, the nation withdraws about 2,000 Bcf of natural gas from storage during the winter months of November through March. If that occurs this winter, inventories would still be at very high levels heading into the storage injection season on April 1, 2010. High storage inventories help to contain price rallies caused by colder weather and if there isn’t cold weather, high inventories will depress physical prices.”
The current price contango is only going to exacerbate this situation. “With natural gas prices into the future trading at a substantial premium to the front-month of November 2009, storage owners have an incentive to retain their storage inventories for use later in the winter season,” says Wood. “Owners may even decide to keep storage in place because with current prices, it may not make economic sense to withdraw storage in February 2010 only to replace it with higher-priced supplies in May 2010, especially if there are sufficient gas supplies in the open market that are competitively-priced because demand is down.”
The pricing impact of record-level storage inventories and the current price contango for natural gas will be discussed in greater length in Energy Solutions’ October edition of The Advisor, to be issued next week. Request a complimentary copy of the October edition of The Advisor by sending your request to request-oct-pr@energysolutionsinc.com or call (608) 848-9589.
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About Energy Solutions, Inc.
Formed in 1996, Energy Solutions, Inc. is independently owned. With more than 25 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.
