Natural Gas Alert 08/12/2004
Natural Gas prices continue to be very volatile on the NYMEX exchange over the past few months. All of the technical information would support lower prices than the current $5.614 posting for the September 2004 contracts. Storage is 117 Bcf ahead of the 5-year average, currently at 2,452 Bcf and will be above last year's number of 2,222 Bcf. Injections of gas into storage have been above average each week and every analyst I have spoken with says, “We will have no trouble filling storage before winter.” Actually many LDCs are concerned with having to call warm weather Operational Flow Orders (OFO) before the summer is over because of having too much gas in storage with no consumer demand.
The Baker Hughes Report on the nation's oil and gas rigs for on-line rigs reports that they are up by 6 this week to 1,235, compared to 1,074 a year ago. The number of rigs drilling for gas increased by 7 to 1,064, compared to 920 last year at this time.
Analysts are saying crude oil is still the driver behind the higher natural gas prices. Crude oil has just hit a new high of over $45.50 per barrel in spite of oil producing counties increasing their output. Traders are saying this is because of the 37 rigs that were evacuated on Wednesday in preparation for Tropical Storm Bonnie. This evacuation means the loss of approximately 2 Bcf per day in natural gas and about 25% of the oil production, or 419,000 barrels per day, shut in.
It’s important to remember that one-third of the large industrial consumers in the country have the option to switch to an alternate fuel and with #6 oil along with natural gas being this high, industrialists are playing the switching game. This means they will switch back and forth each week or month until the market gives them a true alternative.
Looking at the market right now, we feel that natural gas should be lower than the current winter strip of $6.60. If the cash market takes a break downward because of the OFO issue, you should see prices drop into the mid $5.50 range. When this happens, we would recommend you consider locking in 30 to 40 percent of your winter usage requirements.
Based on this information, you need to plan on paying more for your natural gas this winter and additional planning for next summer’s requirement needs to be considered.
For more information on how UR can reduce your energy and telecommunications costs, please go to Complete Services.
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