Yan Jun Xu, BM, MM, PhD
學習，分享，傳播和交流健康的理念，知識和經驗。
Natural gas prices not likely to sink to 2012 levels
With winter nearly in the books, it’s time to think about the path that natural gas prices are likely to take over the course of the upcoming summer season. Parallels to 2012 invite end-users to dream of prices dropping below $2 per MMBtu. However, different conditions with respect to storage inventories are likely to drive a more typical seasonal pattern for prices with the low price for the year coming in quarter three rather than in April.
From a fundamental perspective, natural gas prices are likely to remain low compared to recent history, and could come close to the decade low levels established in 2012. Production is going gangbusters, and even with flat production from month to month through the summer, 2015 will post year-over-year production growth through the summer north of 4 Bcf per day. Three years ago production was at record highs and prices were cratering. In fact, looking purely at price trends, there is an eerie similarity between futures pricing.
It’s tempting based on production and price similarities to start salivating over sub-$2 natural gas in April. However, in 2012, two fundamental drivers were necessary drive prices to trade below $2. Production was strong, similar to our present day scenario, but in addition to growing supply was a massive inventory surplus driven by a very moderate end to winter. In 2012, the end of the withdrawal season saw inventories at a 911 Bcf surplus to the five year average as of the April, 6, 2012, storage report.
Counter to the typical seasonal tendency to see a “lower low” around quarter three of each year, in 2012 low was posted early for the year. The key driver for this atypical occurrence was storage. With an entire summer of large production driven injections ahead of the market and abundant inventory, there wasn’t flexibility for the market to absorb excess production into what would rapidly become constrained inventory capacity. Instead, the market dropped to a price that found a price sensitive consumer in gas-fired power generation that was capable of clearing the excess supply and avoiding the concern of running out of inventory capacity. Unlike 2012, inventory levels leaving the withdrawal season are anticipated to be near normal, suggesting that the market has at least 800 Bcf more capacity at its disposal to absorb excess production. Because of the storage buffer, it seems more likely that prices, while remaining under pressure for the next four months, will not crater like they did in 2012, but instead follow a more typical seasonal pattern with the low for the year observed sometime after June.
