Musings: In A World Of Oil Terrorism, Natural Gas Storage Is Crucial

In contrast, the 2003 injection season began with storage of about 125 Bcf below this year’s starting volume of 822 Bcf, but wound up the summer with storage at 3,155 Bcf, reflecting a total injection volume of 2,495 Bcf. That was the most gas injected in any year since 1994, slightly exceeding the 2,414 Bcf of gas injected in 2001.

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Exhibit 4. Weekly Injection Now Above Historical Record
Source: EIA, PPHB

Last year, the industry began the injection season with 1,687 Bcf of gas in storage. After injecting 2,127 Bcf of gas, the injection season ended with a storage volume of 3,814 Bcf. Based on the weekly storage volumes so far this year, the industry is averaging 81.5 Bcf of gas per week being injected, which is well above the low season average of 58 Bcf per week of 2000, but modestly below the high volume of 87 Bcf per week injected during the 2003 season. Last year, the industry averaged 70 Bcf of gas injection weekly. With the industry outperforming the seasonal averages of last year and the weakest injection season, hopes are high that the industry will reach a storage volume that will ease the price spike concerns of gas users.

If the industry injection volumes track those of the three years we modeled, only the weakest historical injection season would leave storage volumes below 3.0 Tcf, but none of these scenarios would put storage volumes within the range of the minimum and maximum volumes of the past five years. When looked at over 1994-2014, all three scenarios put the industry storage volumes within the minimum-maximum range, with the high injection volume (2003) pattern putting it in the upper half of the range. An injection season averaging the same as last year would put the final volume in the bottom third of the historical range. Only the weakest injection season (2000) would put the final volume near the absolute minimum of historical storage volumes.

To appreciate the task in front of the gas industry, Exhibit 5 shows where we started and where we are in rebuilding storage volumes as of June 19. To reach 3.4 Tcf of gas in storage, the industry needs to inject 1,681 Bcf of gas before the end of October. With an 81.5 Bcf per week average storage injection, if that pace is maintained for the rest of the season, the industry would reach a volume slightly above 3.4 Tcf by November 1. We still have several months of hot weather potentially ahead along with possible production disruptions due to hurricanes. Those issues will impact weekly injections, as will other factors such as the performance of nuclear power plants and switching between gas and coal.

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Exhibit 5. The Hole Gas Industry Climbing Out Of
Source: EIA, PPHB

In our view, barring some unforeseen production disaster, we would rule out the industry only matching the weakest historical injection season. Therefore, the question becomes whether the industry can match the best injection season ever, or only exceed the performance of last year. It may still be too early to make that call, but we are confident the industry will wind up averaging more than last year but less than the historical best year. Thus, we are now thinking that the industry will wind up with storage reaching 3.2 Tcf, with the outside possibility that it will reach 3.3 Tcf. We don’t believe the industry will reach 3.4 Tcf as we sense there are too many variables that could work against gas during the balance of the injection season. If the industry hits our estimate, or those of other gas storage optimists, we would expect natural gas prices to remain in the $4.50-$4.75 per thousand cubic feet range. You can expect us to revisit this forecast several times before the start of the withdrawal season because gas prices will be an important influencing factor on the domestic economy’s outlook and the future of oilfield activity and the petroleum industry’s performance.



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