A closely watched forecast shows that the coming winter will be manageable for US natural-gas markets. That may not be enough to take the wind out of natural gas prices.
The association said in its presentation on Thursday that the winter will be 1% colder than last year and roughly in line with the previous three winters. If the season ends as NGSA expects, the US will end up with 1.7 trillion cubic feet of gas in underground storage by the end of March, 6.3% less than the five-year average, but about a real physical shortfall. enough to allay any apprehensions. of the object If temperatures become similar to the cold winters of 2013–2014, however, NGSA estimates that storage will begin to reach one trillion cubic feet in March, a level that could lead to price increases.
The forecast comes with US benchmark natural gas already trading at $5.64 per million British thermal units, up 83% from last winter’s average price. In Europe and Asia, which are competing for liquified-natural-gas cargo from the Americas and elsewhere, prices are six to seven times as high.
Weather aside, there are some assumptions within the forecast that may be too optimistic. Energy Ventures Analysis, the consultancy that produced the report for the association, projects that dry-gas production will increase by 3.7% this winter compared to the previous one, driven by higher prices. Yet there is no strong indication that suppliers are responding. Although natural gas prices have nearly doubled since May, the number of active US dry-gas rigs has remained largely stable over that time, according to data from Baker Hughes.
Even if producers begin drilling more vigorously in the coming weeks, it will be too late to help the early winter demand. It takes three to six months for new wells to start production. Drilled but unfinished wells can begin production more quickly, but Richard Radsch, head of global gas planning at S&P Global Platts, notes that there are limited supplies that may be called for in short order.
There are other factors that make this winter’s natural-gas storage forecast particularly difficult, including higher LNG exports, which create a link between US natural-gas prices and those overseas. Natural gas prices are rising steadily in Europe and Asia, and some forecasters are predicting a cold winter in Europe. It also doesn’t help that coal is scarce and expensive in the US, which limits the amount of switching the electricity market can make to the dirty fuel. Both of them can take wild card prices to new heights.
Americans can rest easy knowing that they will surely have enough fuel to end the winter. That doesn’t mean it will be cheap.
Jinjoo Lee at [email protected]