The natural gas market is looking rather tight, even as U.S. production continues to set new records. Inventories fell sharply last winter, leaving the country light on stocks heading into injection season.
Record-setting production was expected to replenish depleted inventories, however the past six months has not led to surging stockpiles, and inventories replenished at a much slower rate than expected.
The US is about to enter the winter heating season with inventories at their lowest level in 15 years.
Low inventories and potential deliverability risks led the Bank of America Merrill Lynch to hike its price forecast for the first quarter of 2019 to $4 per MMBtu, up from a prior estimate of just $3.40/MMBtu.
Coal shutdowns have led to a lot of fuel switching. Moreover, new gas-fired power plants have opened up and continue to do so.
Peak winter demand in the early 2000s stood at around 75 to 85 billion cubic feet per day (bcf/d), according to BofAML. That figure spiked to 100 bcf/d last winter aided mainly by a brutal cold snap in early January.
A cold snap this upcoming winter would likely lead to a price spike, especially with the inventory buffer so low.
“The Polar Vortex winter of 2013-2014 realised a record low salt inventory level of 54 bcf,” BofAML said — salt inventories are those that can be called upon quickly.
“Another Vortex would be catastrophic,” Bank of America Merrill Lynch has warned.
Unlike 2014, the last time we saw a polar vortex and a natural gas price spike, this time around there is a lot less coal to fall back on in the event that inventories plunge to low levels amid soaring demand.
As a result, natural gas prices might be forced even higher.
“A cold winter paired with higher coal prices and reduced gas-to-coal switching could propel NYMEX natural gas to a brief spike over $5.00/MMbtu,” BofAML said.
For the full article from oilprice.com, click here.
Weather forecast models are growing ever confident that this winter will be brutal with “teeth-chattering” cold sweeping into the far south.
As our sun’s output continues to decline, during its descent into the next Grand Solar Minimum, global average temperatures are predicted to continue their fall too.
A fall of 2C below baseline is possible within the next decade (conservatively) — if this were to occur, it would prove catastrophic for our fragile modern infrastructure.