Are natural gas markets headed for panic? And is that a good thing or a bad thing?

(Author's note: As promised, this column returns to the three-part series on the outlook for natural gas markets following an interruption last week to update the latest developments with OPEC and oil prices.)

Should US natural gas markets start rehearsing for panic? No, not the kind of apprehension that precedes a price collapse, but the opposite-which can have its own negative fallout (along with the bottom-line boost), as oil companies are realizing today.

Some analysts have been darkly warning of a coming spike in natural gas prices this winter, expressing concerns over the low level of storage and the lag time in getting wellhead deliverability back up to where it belongs in order to meet expected spurts in demand as cold weather snaps arrive this winter.

Only this week, American Gas Association has warned that US consumers could face significantly higher natural gas prices this winter. Noting that spot gas prices have topped $4.50/Mcf in the past month and still hover near $4/Mcf, an AGA report says prices could go higher still in the near term as more supply is directed toward storage.

AGA rounded up the usual suspects: Low wellhead prices the past 2 years squeezed drilling for gas, and even a rebound in drilling won't bring enough supplies on line to affect consumers' gas bills this winter. But the association reassures that storage should not be that much of a problem even though inventory levels are much lower this year than at the same time a year ago. Storage is only a bit lower than the average for the past 5 years, says AGA, and "All indications are that they will be up to targeted volumes by the onset of the winter."

But cold-weather demand can change the picture, says AGA: "A return to normal weather [from the mild levels of the winter of 1999-2000], even if natural gas prices were unchanged from their relatively low levels last year, would increase consumers' heating bills. Consumers should expect significantly higher natural gas bills if the present increase in gas commodity prices combines with higher gas consumption due to colder [but normal] weather."

AGA's assurances notwithstanding, there has already been a surprise on the storage side. Injection rates for last week came in about 20 bcf below market expectations. Much of this was due to the surge in demand from the increased cooling load in the Southwest and South-central US. So injection rates are going to have to pick up a bit from current levels in order to reach the targeted comfort zone of 3 tcf by Nov. 1, maybe as much as 78 bcf/week vs. the 54 bcf of last week. Most analysts are projecting that storage will come in at 2.6-2.7 tcf.

That's getting closer to the danger level that Greenwich, Conn., analyst Charles Maxwell of Weeden & Co. was predicting last month. Given the increased gas-fired power demand cooling load and the strong US economy, a return to normal winter weather-which the last few winters decidedly have not been-storage is likely to come in below 2.5 tcf.

So what then? Maxwell sounded pretty apocalyptic last month: "In practical terms, unless the coming winter approaches the highly unusual, +13% warmer-than-usual season we have just passed through, US gas storage numbers are accumulating in a potentially disastrous pattern of insufficient gas to take this country through the full span of cold weather to April of 2001.

"There is the possibility that we will be forced to allocate gas supplies to private homes, government departments, and public institutions, to defense installations, and to schools, universities, hospitals, and so on."

Maxwell frets that such rationing would hit the US manufacturing sector especially hard, with the potential for some far-reaching damage to the economy. He sees this as a likely scenario unless some reversal in the US gas consumption trend of 3%/year growth is forthcoming.

Maxwell sees a five-stage process in the evolution of a market panic:

  1. The decline in wellhead deliverability.
  2. Markets and investors delaying too long in seeing the supply crunch, thus denying producers the opportunity to redress the problem in a timely way.
  3. Media attention focused on industrial plant outages.
  4. Governmental reaction, coming amid the politics of a tightly contested presidential election campaign; the likely result would be the Clinton administration ultimately acknowledging the problem and raising the possibility of gas allocations, further alarming industry.
  5. Panic and overexposure, in mid-to-late fall, followed by the actual onset of cold weather. Early outages could come in late January, with the worst to come in February and March.

This kind of scenario leads Maxwell to speculate that natural gas prices could peak in February at $6-7/MMbtu.

And the aftermath? A higher price range for natural gas, application of new technology, increased drilling, more LNG terminals, and an increased push to bring Alaskan gas south.

Sounds like a boom to me.

And it certainly is worth remembering that the last Democratic president to preside over an energy crisis (remember "the moral equivalent of war"?) did not have a hand-picked successor who is the avowed No. 1 enemy of fossil fuels?

That earlier effort ushered in the boondoggles of synfuels and conservation-at-any-cost. Perhaps a couple of oil men in the White House might have a better approach.

OGJ Hotline Market Pulse
Latest Prices as of July 28, 2000

Click here to enlarge image

null

Click here to enlarge image

null

Nymex Unleaded

Click here to enlarge image

null

Nymex heating oil

Click here to enlarge image

null

IPE gas oil

Click here to enlarge image

null

Nymex natural gas

Click here to enlarge image

null

Related Articles

BHI’s rig count reaches 5-year low; forecast projects more losses

02/20/2015 The US drilling rig count fell 48 units—markedly fewer compared with declines in recent weeks—to settle at 1,310 rigs working during the week ended...

Noble Energy’s budget down 40% in 2015

02/20/2015 Noble Energy Inc., Houston, plans to spend $2.9 billion in 2015, representing a 40% reduction from 2014. The company also reported full-year 2014 n...

More pragmatism urged for developing Eastern Mediterranean gas

02/20/2015 Eastern Mediterranean nations should abandon inflated expectations and adopt more realistic approaches to developing their natural gas resources, s...

Marathon revises down budget by 20%

02/19/2015

Marathon Oil Corp., Houston, has reduced its capital, investment, and exploration budget for 2015 by another 20% to $3.5 billion.

Magnum Hunter slashes budget by 75%

02/18/2015 Magnum Hunter Resources Corp., Houston, plans a $100 million upstream capital expenditure budget for 2015, down from the $400 the company planned f...

Comments sought on Pinedale Anticline gas field noise report

02/18/2015 The US Bureau of Land Management’s Pinedale Anticline Project Office (PAPO) is seeking public comments on a 2014 acoustic noise report on sound lev...

Another cut seen in Groningen gas output

02/18/2015 Production from giant Groningen natural gas field in the Netherlands might be further curtailed in response to public concern about earthquakes.

BP Energy Outlook projects global energy demand to jump 37% by 2035

02/17/2015 Global demand for energy is expected to rise by 37% from 2013 to 2035, or by an average of 1.4%/year, due in large part to ongoing economic expansi...

Devon reduces capital budget by 20% in 2015

02/17/2015 Devon Energy Corp., Oklahoma City, plans an exploration and production capital budget of $4.1-4.4 billion in 2015, representing a 20% decline compa...
White Papers

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...
Available Webcasts


Prevention, Detection and Mitigation of pipeline leaks in the modern world

When Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST



On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected