Natural Gas Buyers Need to Prepare for First Quarter Decline

With natural gas storage inventories already at 3,716 Bcf and three weeks remaining in the injection season, the nation is running out of places to put excess natural gas. Numerous natural gas pipelines have been issuing operational flow orders (OFO) as storage inventories reach maximum capacity. An OFO means that pipeline deliveries are limited.  They are issued when there is a concern that more gas is being put into the pipeline than can be delivered on the other side, either to actual consumers or into storage.  This situation can result in overpressurization of a pipeline, which is dangerous.  Thus, OFO's maintain the integrity of the pipeline system.  However, OFOs also mean more gas is available in the physical spot market because it can't make its way into storage. 

“On Friday, as the November 2009 natural gas NYMEX price gained $.30 per MMBtu, while the physical price at the Henry Hub in Louisiana only moved up $.12 per MMBtu,” says Valerie Wood, President of Energy Solutions, Inc.  “Many other locations, including the Northeast where temperatures remained below normal, actually experienced price declines.  This is an indication of adequate physical supplies.  The colder weather is helping to keep supply and demand better balanced.  With the ongoing number of OFOs, the colder weather may actually help producers avoid shut-ins.  Meanwhile, the colder weather is helping to push up and/or support NYMEX prices and that too will incent producers to avoid shut-ins caused by these OFOs.  That's a good thing.” 

In its most recent edition of The Advisor, Wood emphasizes that this is the time of the year for natural gas price rallies to occur and urges natural gas buyers to get prepared for the first quarter decline.  “With the glut of natural gas in storage, even a colder winter isn't likely to deplete it quickly.  If November starts out warmer than normal, there will be plenty of physical gas in the spot market to keep NYMEX prices lower.  Conversely, if November starts out colder than normal, producers will hang onto their storage inventories for use later in the winter when prices would be expected to be higher.  Either way, storage inventories should be more than adequate this winter and that is going to contain any rallies and set the stage for the first quarter decline,” says Wood. 

Learn more about why and how natural gas buyers should be preparing for the first quarter decline in the October edition of The Advisor, a publication of Energy Solutions, Inc. that is specifically designed for end user buyers.  Request your complimentary copy by sending your request to request-oct-pr19@energysolutionsinc.com or call (608) 848-9859. 

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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.