The natural gas market has remained largely range bound over the past month with the spot market price holding under the $3.000/MMBtu level and above the 31-month low of 2.567 posted in February.
There have been several weather-related rallies over the course of this winter but all have quickly sold back lower as increased storage relative to 2014 and record high production have kept upside strength to a minimum.
Domestic production of natural gas which reached a record high of 78.8 Bcf (billion cubic feet) per day in December 2008 according to the EIA’s March Short Term Energy Outlook is assumed to have decreased slightly in early-2015 due to production freeze-offs in the production areas. However, overall production has been averaging 8-8.5% above the 2014 level keeping the market well supplied even with increased winter-related heating demand and production freeze-offs.
Although the natural gas rig count has plummeted to 277 rigs (down 87 rigs or 25% from the year ago level) according to the March 13th Baker-Hughes rig count report, total production of natural gas is expected to remain high during 2015. The EIA expects production to average 5% or 3.7 Bcf (billion cubic feet) per day above 2014.
Countering higher production is consumption which is expected to increase in both the electric power and industrial sectors during 2015 due in part to lower priced natural gas. Electric power demand is predicted by the EIA to increase from 23.1 per day in 2014 to 25 Bcf per day in 2015, a net increase of almost 2 Bcf per day. Industrial demand in expected to increase in 2015 by 8.1% rising to 23.2 Bcf per day. Between the two sectors, total consumption of natural gas during 2015 is predicted to rise to 75.7 Bcf per day from 73.5 Bcf per day in 2014 which could help offset increased production.
Gas currently in storage of 1,512 Bcf, is 483 Bcf or 47% higher than in 2014, but 225 Bcf or 13% below the 5-year average. With 3 weeks to go in the current withdrawal season which ends the last week of March, gas in storage at the end of the this winter will likely fall in the 1,400-1,450 Bcf range, below the 10-year average for end of March storage of 1,565 Bcf.
Seasonally, the natural gas market tends to set two seasonal lows, the first being in March/April and a secondary low during August/September. The August/September low over the past 3 and 5 years has been the lowest price point of the year.
Upcoming weakness over the next few weeks in the natural gas market should be used to complete summer 15 coverage and to add to winter 15-16 and longer dated coverage.
However, given ample storage, record high production and the possibility for high storage injections similar to the summer of 2014, the August/September time frame might be the best opportunity to layer in longer term coverage at what could be a multi-year low in the natural gas market.
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