Access

Protecting your
information

Executive Summary of our Cybersecurity posture.

Learn More

© 2019 AEGIS Energy Risk, LLC. All rights reserved.

You do not have access to the industry's first bilateral hedge Marketplace just yet.

Please contact us to

Get Started

or

Learn more

You do not have access to the industry’s leading hedge management platform just yet.

Please contact us to

Get Started

or

Learn more
BlogNatural Gas

Summer Gas Prices Are in Danger

Print Friendly, PDF & Email
By June 26, 2020 No Comments

Last week’s 120-Bcf increase in gas inventories is troublesome. Again we address that storage builds like those in 2019 can’t be tolerated for long. 

The chart below shows that last week’s 120-Bcf injection into Lower-48 storage facilities was a departure from the recent trend. By this model, we would have expected a build of around 105 Bcf for the week that ended June 19. But, looking at history, an occasional 15-Bcf (or ~2 Bcf/d on our chart) is not unusual.

Last week’s 120 Bcf injection was either a warning sign or an outlier.
In the previous three weeks, the supply-demand balance had been improving vs 2019, after AEGIS corrects for temperature.

If this latest statistic from EIA is not an outlier, it could signal a return of supply (maybe associated gas volumes coming back from shut-ins?).

However, it’s possible that some weather calculations from government and vendors have improperly weighted different city temperatures. Slide the green arrows in the chart below to see how last week was cooler in many places than the previous week had been.

(Energy nerdiness: EIA’s surveys are done as of early morning on Fridays. Therefore, they don’t really include what happened each Friday, but rather, the Friday a week earlier. The chart below shows seven-day averages ending on Thursdays.)

Yet, even without this extra-large storage injection last week, the amount of inventory is growing too fast to handle.

The chart below shows how gas inventories came out of winter at very high levels. Therefore, even if the supply-demand balance is very similar to 2019, there is too much supply. This market is on a collision course with storage limits.

There is not as much room left in storage this year as last year.
Last year’s inventory builds were tolerable and needed because summer started at a storage deficit.
If usable storage is near 4.2 Tcf, the supply-demand balance may need to adjust to avoid storage limits.That could mean lower prices.

There are two main ways to solve this problem, if supply doesn’t change and social-distancing demand losses don’t diminish. Both require lower prices.

Create more demand. If prices move lower, sooner, extra demand would be created in the power sector. Lower gas prices enable gas to compete better with coal. Specifically, gas prices are at a level right now where gas could pick up demand in Texas. There are limits, though. Reach out to the AEGIS View team if you need details.

Call up more storage. You can’t create more storage capacity, but you can persuade storage operators to inject more into the more flexible caverns. Unfortunately, this is accomplished by a steep, temporary drop in prices (more precisely, by more contango in the curve). In the past, the September, October, and November contracts have been vulnerable to this kind of move.

There is a silver lining to this cloud. Usually, when gas storage is threatening to fill, discounts to natural gas prices happen in the current summer. The winter months and the following summer (which would be Summer ’21 in this case) are unaffected.

If your exposures to lower prices for the remainder of summer could cause problems in your budgets, the AEGIS Engage and View teams are here to help you alter your hedge book to add protection.

We continue to monitor oil, gas, NGLs, and regional markets for hedging opportunities. To learn more and see AEGIS opinion and recommendations, go to AEGIS View publications, or contact info@aegis-energy.com. Like what you see? Share this article with the button on the bottom right of your desktop. Market questions or comments? Contact us at view@aegis-energy.com

Back to AEGIS Market Summary beta blog

NOTICE: The content of this report is provided for information purposes only and has been prepared to describe current trends in the commodities markets. This information does not constitute either investment or hedging advice and is intended only for AEGIS clients. If you are not the intended recipient of this report, then you may not disclose, print, copy or disseminate this information. Otherwise, if you have received this transmission in error, then please notify the sender and delete the report.