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Page added on February 28, 2014
Robert Rapier: Natural Gas Inventories are Headed Toward Zero
This winter has been one of the coldest on record. It’s been the coldest winter in at least 30 years, and I saw a report today that there is a chance that this will be Chicago’s coldest winter on record. Presently it is the 3rd coldest on record for Chicago, but another blast of cold air is just moving into the Midwest and East Coast.
Natural gas is a major energy source for heating homes, and prices have been spiking periodically in recent weeks as the weekly draws on natural gas inventories are higher than normal. Natural gas consumption in the US is highly seasonal, so producers use a system of underground pressurized storage that builds inventories until mid-fall, which are then depleted through the winter. Natural gas can be stored in depleted oil or gas reservoirs, in natural aquifers, or in salt caverns.
The US has nearly 9 trillion cubic feet (tcf) of natural gas storage capacity, but only a fraction of that has ever been used. According to the Energy Information Administration (EIA), the actual amount in storage has never exceeded 4 tcf. Inventories will usually build to between 3 and 4 tcf by ~ November 1st each year, before being pulled down to under 2 tcf by the end of winter. So a typical winter season will see just over 2 tcf pulled out of storage — an amount equivalent to about 10 percent of annual US natural gas production.
In the case of a mild winter as in 2012, inventories won’t be pulled down as much before they begin to rebuild. In fact, the winter of 2011-2012 failed to pull gas inventories below 2 tcf for the first time in over 20 years. It wasn’t a coincidence that this corresponded to natural gas prices that went below $2 per million Btu (MMBtu) the following month, and spent a full year below $4 per million Btu (MMBtu).
Presently, the exact opposite is happening. This season’s withdrawal marks the fastest inventory depletion on record during the winter months. We have already withdrawn 2.4 tcf — more than the average for most winters — and we are likely 4-6 weeks away from the bottom. If withdrawals continue at the current pace, the inventory level would reach zero the week of March 28th (see the figure below), which is usually around the time inventories start to recover. This may lead to more spiking prices in the weeks ahead, but more importantly it will probably support higher than normal natural gas prices for the rest of the year.
Gas in underground storage is on a trajectory to hit the lowest inventory on record
Regardless of what happens over the next 6 weeks, natural gas inventories will probably bottom out at the lowest level on record. The current lowest inventory level on record took place on April 11, 2003 at 642 billion cubic feet (bcf).
Natural gas in underground storage hasn’t dropped below 1 tcf since 2003, but the latest EIA report showed inventories on February 14th at 1.4 tcf and falling at a weekly rate of 245 bcf per week (average rate of decline over the past month). At that rate, we will go below 1 tcf of gas in underground storage this week, but the EIA won’t report that number until late next week.
Obviously you could have extrapolated any of those previous years to zero, but the point is that inventories generally start to rebuild after March 28th. Extrapolating previous years would have interested with zero around mid to late April, after injection season has resumed. The following graphic makes it a bit more obvious that this year’s decline is historically abnormal:
The media hasn’t spent much time covering this issue, but I expect it will garner some attention if we drop below 1 tcf next week since it hasn’t happened in over a decade. This would put the US about one more cold snap from sending natural gas prices to the moon.
Natural gas prices have been falling in recent days, but I think that sell-off is premature. I predict that we will drop below the previous all-time low of 642 bcf from 2003. If the weather warms up soon we may be able to avoid it, but it looks increasingly likely to me.
27 Comments on "Robert Rapier: Natural Gas Inventories are Headed Toward Zero"
J-Gav on Fri, 28th Feb 2014 10:26 pm
I guess we’ll find out pretty soon since another bout of polar vortex intrusion is due next week.
dolanbaker on Fri, 28th Feb 2014 10:43 pm
The UK had a similar experience last year, their gas stowage fell to almost zero, in fact on some charts it went below zero.
The country was running on fumes for a while and was saved from running out by a number of bulk LPG deliveries and a change in the weather, otherwise rationing would have been started.
ghung on Fri, 28th Feb 2014 11:27 pm
Looks like Russia invaded Ukraine. Perhaps the EU needs to worry about its inventories as well.
Nony on Fri, 28th Feb 2014 11:53 pm
Wanna bet? Price is down to 4.50
http://www.wtrg.com/daily/ngfclose.gif
Nony on Sat, 1st Mar 2014 12:16 am
Robert, too late and too cosine to the sine.
“The futures tumbled 25 percent this week, capping the biggest one-week drop since 1996 and the first monthly decline since September.”
http://www.bloomberg.com/news/2014-02-28/natural-gas-heads-for-biggest-weekly-drop-in-new-york-since-1996.html
GregT on Sat, 1st Mar 2014 1:11 am
“Wanna bet? Price is down to 4.50”
Anybody else ever remember a time when the market speculators were wrong?
Contrarians have been known to do exceptionally well. 🙂
paulo1 on Sat, 1st Mar 2014 1:37 am
No problem. There is a large 100 year supply and surplus to export. Meanwhile, in the 51st state:
Regina….-40C tomight…minus 60 windchill
Vancouver Island : 10C today….-1 tonight
The rest, somewhere in between.
Nony on Sat, 1st Mar 2014 2:04 am
Spring is in the air…
https://www.youtube.com/watch?v=GQ0tKl1kAwM
Northwest Resident on Sat, 1st Mar 2014 2:40 am
NG is almost irrelevant when it comes to the subject of peak oil, isn’t it? We don’t have the infrastructure or the production capacity or anything else in place to power transportation in this country on NG, much less the world. The investment required to get there would be prohibitive to the extreme, not to mention the logistics involved. If we ran out of oil today, it wouldn’t matter how vast our stores of NG were, we’d still be toast.
Makati1 on Sat, 1st Mar 2014 3:11 am
NWR, you are correct, of course. We are living in a world that took 200 years and many trillions of dollars/yuan/Euros/etc. to create. It was an exceptional age of cheap, plentiful energy. That party is over. Now we go back to our regularly scheduled lifestyles, pre-1850, maybe. That is, IF Mother Nature allows it. I don’t think she will.
DMyers on Sat, 1st Mar 2014 5:17 am
I guess things aren’t as good as they seemed.
Arthur on Sat, 1st Mar 2014 5:57 am
This was the fourth warmest ‘winter’ here in Holland since 1881. No snow, no ice, no frost. Did not have to scratch the window shield even once. Lowest gas bill in years.
Papasmurf on Sat, 1st Mar 2014 6:29 am
NW Resident,
Regarding peak oil, natural gas does help a great deal as a substitute.
Natural gas is a substitute for gasoline only in the sense that a portion of the electric grid is powered by natural gas.
We are not going to have natural gas directly burned in cars. The trend is towards EVs. The Nissan Leaf, GM Volt, Tesla, etc.
Tesla just announced the largest battery factory ever and raised $1.6 billion to fund it. They will be building 500,000 EVs per year by 2018-2020.
rockman on Sat, 1st Mar 2014 8:20 am
NR – But it does bring into question expectations of a NG motor fuel future (both direct and electic source from NG) based upon recent low prices. Imagine if we had been drawing a significant volume for transportation this winter and where withdrawls and prices would have gone. Predicting a future rise in NG motor fuels seems very questionable IMHO., And should also seems so to the folks that who would have to invest the many $billions to get us there.
rollin on Sat, 1st Mar 2014 2:21 pm
Yes the world is the warmest ever, but NE US, part of Canada, N Siberia are all experiencing extreme cold at times. The northern air is jostling around and getting locked in long term patterns that did not exist before.
Nat gas reserves will be hit one more time next week and who knows after that. Unless this pattern changes, NE US can expect another cool summer and the arctic will be warmer than ever.
The Gulf Stream is meandering more, if it slows down again I am outta here – headed to warmer climes. Arctic vortex plus less heating from the ocean will plunge NE US into a deep freeze. Crops will fail, heating costs will go way up.
Davy, Hermann, MO on Sat, 1st Mar 2014 2:55 pm
@rollin – if you feel so confident with climate predictions I recommend the casino called the CBOT. Great place to make a killing when one securely knows trends especially with the weather.
buddavis on Sat, 1st Mar 2014 3:04 pm
I think a more realistic number is 1 TCF gas in storage when the drawdown season closes, plus or minus 100 BCF.
Jerry McManus on Sat, 1st Mar 2014 3:41 pm
Look on the bright side, if NG prices go way up then that is certain to re-ignite the fracking frenzy. Yay!
Around and around we go, where we stop nobody knows…
shortonoil on Sat, 1st Mar 2014 3:44 pm
@NR
“NG is almost irrelevant when it comes to the subject of peak oil, isn’t it? ”
As shown in graph# 25 at our site, World GDP for the last half century has had an almost perfect correlation to the production of conventional crude. What is not shown at the site, but is graph# 23 in the study, is that conventional crude price has been setting all world energy prices for the last century.
The reason King Oil has, and still rules the roast, is that petroleum is by and far the most efficient method of delivering energy to the end consumer. Other fuels, such as NG, lose a large percentage of their gross energy before they reach the end consumer. NG for example (gives up as a minimum) 43% of its energy as waste heat during the combustion process. But, petroleum itself is now in trouble, it takes more than half of the energy content of petroleum to produce the petroleum (the half way point occurred in 2012). With 60% of the world’s petroleum coming from 1% of its fields, and those fields averaging more than 60 years in age, major changes are coming for low cost fuels. Over the next five years those critical fields are expected to go into steep decline.
Any organization, or individual had better have a good plan of action for when the day comes that energy prices skyrocket. A plan is not a guarantee of making it, but a lack of one is almost certainly a guarantee that they won’t!
http://www.thehillsgroup.org/
rollin on Sat, 1st Mar 2014 4:39 pm
@ Davy
I am confident of the trends, the local details vary but being a physicist, I can be fairly sure of what happens if something major changes.
I guess when you get old you miss things. The word “if” starts the sentence, look it up.
Davey on Sat, 1st Mar 2014 4:49 pm
I agree with your weather assumptions actually. The meandering northen jet flowing slowly like a river with a wide shallow bottom instead of a normal deep channel with swift current. Rollin being old is not for sissies. Sorry if I missed the if
Nony on Sat, 1st Mar 2014 5:31 pm
@Rock:
Having more steady-state (non-heating) use of NG would reduce price variability because the seasonal demand would be a smaller fraction. It might raise prices overall, though, since after all total demand is rising. Still worth it, because of replacing a high cost material (oil) with low cost.
bobinget on Sat, 1st Mar 2014 6:52 pm
It isn’t called Climate CHANGE for nutting. Don’t count on a cooler summer to help build. Apparatus for ‘cooling’ is far less efficient then for heating.
We will be using more concrete this spring and summer. Cement, a huge NG consumer as is fertilizer and oil refining. So called industrial uses are as great or greater than domestic consumption. This winter’s propane shortages should have been a wake-up call. NG is slowly replacing coal in electricity production.
http://www.eia.gov/dnav/ng/ng_cons_sum_dcu_nus_a.htm
Only one bright note, natural gas providers may break even. In some cases return to profitability (on gas) .
If you open that EIA link you will see NG use is greater today. Comparing 2014/15 storage to years ago is moot.
If you love irony as do I, concrete is both our best protection against rising seas and the biggest contributor to climate change.
http://en.wikipedia.org/wiki/Environmental_impact_of_concrete
bobinget on Sat, 1st Mar 2014 6:59 pm
Buffet bet NG prices would go higher.
Warren Buffett admits to rare investing blunder
(Reuters) – Warren Buffett on Saturday said he made a “big mistake” investing in a utility that was the subject of one of the biggest leveraged buyouts ever, but now may be on the road to bankruptcy.
In his annual letter to shareholders of his Berkshire Hathaway Inc, Buffett said he regretted buying $2 billion of bonds of Energy Future Holdings Corp, created in 2007 from the $45 billion buyout of Dallas-based TXU Corp.
Buffett, the so-called Oracle of Omaha and the world’s fourth-richest person, had bought the bonds without consulting his second-in-command, vice chairman Charlie Munger.
“Most of you have never heard of Energy Future Holdings. Consider yourselves lucky; I certainly wish I hadn’t,” Buffett, 83, said. “Next time I’ll call Charlie.”
He said he threw in the towel last year, selling the bonds for a mere $259 million, leaving Berkshire with a $873 million pre-tax loss after taking interest payments into account.
Buffett italicized “big” in “big mistake” in his letter.
The TXU buyout was led by KKR & Co, TPG Capital Management LP and Goldman Sachs Group Inc’s private equity arm.
It was a bet that natural gas prices would rise, allowing the company to charge more for electricity.
Instead, natural gas prices plunged, causing losses at the company’s coal-fired plants, and making a lengthy bankruptcy the most likely outcome.
Buffett said that unless natural gas prices soared, Energy Future will “almost certainly” file for bankruptcy this year.
BAD DEALS
Berkshire is a $286 billion conglomerate better known for owning businesses such as Geico car insurance and the BNSF railroad, and stocks such as Wells Fargo & Co and Coca-Cola Co.
But it also invests more than $29.3 billion in fixed income, and Buffett said his bond investments usually do well.
He did not rank Energy Future in his history of bad investments in Saturday’s letter.
In his annual letter in 2008, he called his $433 million purchase of Dexter Shoe Inc in 1993 “the worst deal that I’ve made” because he used Berkshire stock rather than cash for the acquisition, and because Dexter lost its competitive strengths.
“Fortunately, my blunders usually involved relatively small acquisitions,” Buffett wrote on Saturday.
“Our large buys have generally worked out well and, in a few cases, more than well. I have not, however, made my last mistake in purchasing either businesses or stocks. Not everything works out as planned.”
(Reporting by Jonathan Stempel in New York; Editing by Sophie Hares)
J-Gav on Sat, 1st Mar 2014 7:48 pm
Good points, Shorton, Rockman and others …
george on Sat, 1st Mar 2014 11:28 pm
it’s the warmest year on record …
at the airports lol
rollin on Sun, 2nd Mar 2014 1:27 am
I am hoping for a spring that actually gets above freezing on a regular basis. This chill could really put a dent in farm production, if it continues.
Apparently adding energy to a large system like the earth tends to cause greater variations in the weather in both directions. Major heat transport systems are being shifted and disrupted.
With that in mind, the energy stockpiles should all be increased and major thrusts made to conserve and reduce energy usage to avoid damaging shortfalls.
One thing I notice is that the solar farms that have been built in my area are angled to use summer sun not winter. We have had lots of sunny winter days that could have reduced the tremendous use of coal and natural gas for electricity production, but the solar panels are at the wrong angle to be of much help. Another case of design for profit and subsidies versus actual need.
The natural gas fired power plant in the region is going gangbusters every time it gets cold. Yesterday I saw steam from all the generators on the site, two more than usual. Temps hit around zero again, 24 degrees below the average low for this date. Predictions show another arctic blast starting in two days from now and lasting for over three days.