Energy Finance

Total working gas in storage rose to 3,458 billion cubic feet (Bcf) for the week of September 14, which is 16% higher than last year, but is down from 17% last week, a fall of 1% this week, according to a report by Michael A. Hall, vice president of oil and gas equity research for Stifel, Nicolaus & Co. Inc.

The week’s injection was in line with the 67 Bcf injection for the corresponding week last year (week-on-week), but well below the 85 Bcf five-year average injection. Year-on-year and the five-year average surpluses started the 2009 summer season at 33% and 23%, respectively, he reports.

Current storage fell to a 17% surplus relative to the five-year average, down from an 18% surplus last week.

“With two weeks remaining in the traditional cooling season, gas in storage rose to 3,458 Bcf, 16% above (486 Bcf) the year-ago level and 17% ahead of the five-year average,” he reports. “Our model currently suggests a 3.7 Bcf/d tightness in the supply and demand for gas, representing a tightening in the supply-demand balance from last week’s implied 2.1 Bcf/d undersupply. This marks the third consecutive week we’ve seen a tightening. Please keep in mind this variable is somewhat volatile and we still see the general trend of tightening as likely to continue into 2010.”

Hall notes that oversupply and the resulting storage level in the producing regions are at new records and are likely to prompt additional curtailments, shut-ins or company-level storage.

“Clearly, as we press on past records, system pressures will increase forcing curtailments and/or shut-ins. Indeed, further aggravating this trend and likely in part driving the last two weeks of meaningful tightness is pipeline maintenance, which is quickly forcing reduced supply. We note much of this maintenance will wrap up toward the end of September and/or in early October, which could put additional upward pressure on season-ending storage levels,” he reports.

Meanwhile, gas front month (October) is trading at about $3.65 per million Btu, or down about $0.11. “While we view the dramatic weakness in natural gas prices as a long-term buying opportunity, we remain measured in the near term as the current supply and demand balance remains loose,” reported Hall.

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