Natural Gas Inventories Are Headed Toward Zero

Energytrendsinsider

BY ROBERT RAPIER

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 We have already withdrawn 2.4 tcf — more than the average for most winters — and we are likely 4-6 weeks away from the bottom.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.

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