Wednesday, January 22, 2014

Natural Gas Storage Headed Much Lower

The persistent cold weather across much of the US and Canada continues to pull gas for power generation and heating.  Forecast revisions continue to emphasize prolonged cold, which suggests that the US is headed toward a season end inventory level below historic norms.  

The Wall Street Journal reported yesterday that Goldman Sachs has lowered their inventory estimate from 1.6 TCF to 1.39 TCF.  This is still well above the level that normal weather patterns in Feb-March would suggest.  An inventory target closer to 1.1 TCF is still likely, as the US prepares to exit January with less than 2.0 TCF in storage.  As shown below, that target sits in a large range of outcomes, as weather can still vary significantly in Feb-Mar.  Furthermore, the price of natural gas may remain above $4.50 for the rest of the winter, which would reduce consumption (in the electric power sector).  This should make it difficult for gas to stay above $4.50 for long, unless further cold weather pushes the inventory target close to 1.0 TCF.