summer heat, imports & natural gas inventory
SUMMER HEAT:
The seasonal peak in demand for natural gas by electric power generating plants is one of the most predictable elements of the natural gas supply/demand balance. We need no special weather forecasts to know that July and August will be the hottest months of the year. During these two months, residential consumers will see their electricity consumption reach peak levels due to the extenstive use of air conditioning throughout the southeast, southwest and midwest. Demand in August is usually double demand in April. In the southest, June was as hot as July and August usually are, but EIA data showed demand in the electric power sector this year was 3% less than in 2010. The year-to-year decline in electric power sector demand June was a mild surprise -- especially since net storage injection rates in May and June were 0.4-0.9 BCFD lower than the average for 2008-2010.
OTHER FACTORS:
When the original hypothesis as to why storage injection rates were lower than expected, we naturallly looked at other factors. The year-to-year decline in total imports was the factor that stood out as accounting for the dip in storage injection rates. Total imports were about 0.5 BCFD lower than in 2010 in both May and June. Furthermore, total demand in residential/commercial and industrial markets was 1.5 BCFD higher in May 2011 than in May 2010. In June, total demand for the major market sectors was 0.35 BCFD lower than in 2010 and the increase in inventory was 0.41 BCFD higher than in 2010.
The biggest factor that accounted for total inventory this year persistently lower than in 2010 was the strong year-to-year increase in total demand in April. Demand in April was 4.2 BCFD higher than in April 2010. Consistent with this one-month bump in demand versus 2010, the net increase in inventory was 3.6 BCFD below 2010.
OUTLOOK FOR WINTER 2011/2012:
As a result of the cumulative impact of these factors, inventory at the end of June totaled 2.53 TCF and was 210 billion cubic feet lower than in 2010. Weekly inventory reports showed the year-to-year inventory deficit narrowed 130-150 BCF during July through early September. Nine weeks remain in the storage injection season and we continue to forecast inventory in working storage will reach a seaonal peak of 3.6-3.7 TCF by mid-November. One of the positive factors that supported inventory accumulation during the summer was the absence of major tropical storms or hurricanes in the Gulf of Meixco.
Natural gas prices in the cash market at Henry Hub and in the NYMEX contract are showing the effects of the shift to a more bearish perspective on the part of major buyers and big money speculative traders.
We provide insights into the whys and wherefores of the natural gas market and other important markets in North America in our ongoing consulting service -- NGL Markets in North America.
