Note: This post continues our look at the U.S. natural gas market picture, which was turned upside-down by the coldest winter in a generation. It is my thesis that the “natural gas miracle” story leaves us unprepared for the day when inescapable geological and financial realities collide. –Michael Vickerman
The natural gas injection season has begun. Last week, EIA reported a net build of 4 billion cubic feet (bcf) in storage, raising inventories from 822 bcf to 826 bcf. One would have to go back to early 2003 to find stored natural gas levels this low.
Since the heating season began last November, a record-setting three trillion cubic feet (tcf) of natural gas was pulled out of storage to keep this country from freezing over during the 2013-2014 winter. That total is almost 50% larger than the 2012-2013 drawdown, which reflected a statistically average heating season.
The question arises: can injections of natural gas between now and early November bring storage volumes back to recent norms without a significant price increase? That is the question posed by Jim Hansen in his April 11, 2014, edition of Ravenna Capital Management’s Master Resource Report. While Jim’s newsletter is always worth reading, this issue in particular stands out in its comprehensive look at the dynamics affecting natural gas supplies for the remainder of this year. The opening paragraph sets up the discussion perfectly:
“Will shale gas be able ride to the rescue of natural gas storage by next fall and keep natural gas both cheap and abundant? The market for the last few weeks appears to be saying that supply will ride over the hill just in time to save the day. This week’s report looks at how likely it is the shale gas cavalry will show up and save the day.”
Jim’s superb discussion of this complex and evolving story leaves little room for embellishment or clarification. It’s worth pointing out, however, that we have already gone through three months of increased natural gas output this year, as projected by U.S. Energy Information Administration (EIA), yet still we find ourselves looking out of a three tcf hole. Marketed output this January exceeded last year’s totals by 4%. As impressive as that increase sounds, it was more than offset by the drawdown in supply that month. Ditto February and March. Whatever increase in output that occurred in those two months was wiped away completely by the record cold.
EIA predicts that storage levels will rebound by 2.6 tcf this year, leaving us with 3.4 tcf for the next heating season. Never before have energy companies managed to inject such a large volume of gas into storage in such a short period of time. Yet Wall Street’s reaction in facing up to this herculean task remains decidedly ho-hum. Traders are content to coast along with prices averaging 4.50/MMBtu. This is the sort of complacency that invites skeptics like myself to think about the all the unsinkable ships in history now in permanent residence on the ocean bottom.
Note: This update follows my commentary posted last week documenting emerging changes in the U.S. natural gas market picture and discussing whether the altered picture will occasion additional repricing upward to balance supply with expected demand increases.
On February 6th, EIA reported that natural gas storage volumes were 270 billion cubic feet (bcf) under last week’s withdrawal numbers. That number reflects data submitted to EIA on January 31st.
Going into February this year, the quantity of natural gas in storage (1.923 bcf) is half of what it was at the start of the current heating season (3,834 bcf). The heating season generally ends around April 1.
I expect the next EIA report (February 13) to easily surpass the 200 bcf threshold.
In the previous 10 years, the largest amount of gas withdrawn from inventories during the entire heating season was 2,311 bcf. That occurred during the winter of 2007-2008. Thus far this season, a total of 1,911 bcf has been taken out of storage. If the next two reported withdrawals (Feb. 13th and 20th) exceed a combined total of 400 bcf, this winter’s withdrawals will exceed that total, and that will happen before the end of February.
Though this is shaping up to be the coldest winter in 20 years, the price of natural gas still remains below $5.00. How many more weeks of below-average temperatures will it take to move the floor price of natural gas to $5.00 and higher? The game-changer narrative is still hanging tough.
Over the weekend, I checked Chicago and Madison weather forecasts for the week of February 10th. To the extent there is a warm-up in sight, it will happen Thursday and Friday. This respite will bring temperatures back to seasonal levels, but don’t expect it to last. The weather forecast in Madison for the Valentine’s Day/President Day weekend heralds a return to below-normal temperatures.
The cold weather is also taking a bite out of current extraction volumes, as evidenced in the highlighted passage of the Bloomberg News article below. While pace of extraction will definitely pick up as winter gives way to spring, the question going forward is whether supply can increase by a record-setting 2.7 trillion tcf between the end of the current heating season and the beginning of the next. We’re starting to enter uncharted territory.
May 19, 2008
Fossil Fuel Watch: Gas Tax Pains
by Michael Vickerman, RENEW Wisconsin
May 19, 2008
Could there be more convincing proof of America’s debilitating addiction to oil than the recent calls to institute a gasoline tax holiday issued by two of the three presidential aspirants still in the race?
Imagine what would happen if a candidate for public office endorsed a repeal of cigarette taxes. Articulating such a position would instantly disqualify that candidate from serious consideration by rank and file voters. Indeed, it would stop a candidacy faster than you can say “macaca.”
Yet, while Sens. John McCain or Hillary Clinton, both advocates of suspending the 18.4 cents/gallon gasoline tax, have been excoriated in editorials for espousing such patent flimflam, they don’t seem to have lost any ground with the voting public.
Though the McCain-Clinton gas tax suspension proposal set a new low in the public discussion of energy, it can’t be dismissed as mere election-year pandering. Instead, this proposal reveals a dark truth about ourselves: we Americans are psychologically unprepared to accept the energy reality we now inhabit, which is that oil is neither cheap nor plentiful (relative to demand). The same holds true for natural gas.
The factors converging to create global energy insecurity—diminishing output from supergiant fields, rapid demand growth in the world’s most populous nations, civil unrest in oil-exporting nations, etc.—cannot be held at bay with political stunts.
Whether its citizens like it or not, the United States will, going forward, consume a smaller portion of the Earth’s remaining petroleum than at any time during the Automobile Age.
But before the federal government takes action to address supply uncertainties and price volatility, our leaders have to tell the nation in no uncertain terms that continued dependency on oil and natural gas will hasten our economic decline and lead us into future resource wars.
Certainly, Senators McCain and Clinton aren’t up to the challenge. Fortunately for the nation, both are powerless to push their intellectually dishonest tax holiday proposal past Congress and the White House.
The White House predicts that this year’s budget deficit will reach $410 million, a sum that excludes the cost of our continuing military misadventures in Iraq and Afghanistan. The United States can hardly afford to forgo $9 billion in hard revenues just to manufacture the illusion that every motorist will have $28 extra dollars to spend on items other than gasoline.
Savings in excess of $28 can easily be achieved with one less fill-up at the gas station. And how can that be accomplished? By driving less aggressively, turning off the engine while standing, keeping your tires fully inflated, and organizing your errands to reduce miles traveled.
These are simple and practical suggestions that don’t involve sacrifice or hardship. All that is required is the will to take responsibility over your driving habits.
Each time we leave a light bulb burning in an unoccupied room, each time we leave the engine running in the drive-up lane, we dig ourselves a deeper hole. Of course, we must stop what we’re doing, but we’ve become so accustomed to cheap and abundantly available sources of fossil energy that wasting it has become second nature.
So who’s going to throw the bucket of cold water on our national energy fiesta and tell the people that thrift and responsibility are in and energy profligacy is out. Senators Clinton and McCain have disqualified themselves in spectacular fashion. Is Obama our only hope here?
Michael Vickerman is the executive director of RENEW Wisconsin, a Madison-based nonprofit organization that acts as a catalyst to advance a sustainable energy future through public policy and private sector initiatives. These commentaries also posted on RENEW’s blog: http://www.renewenergyblog.wordpress.com
and Madison Peak Oil Group’s blog: http://www.madisonpeakoil-blog.blogspot.com.