EnbridgeEnbridge was in the news Thursday announcing that they were going to ask for a substantial increase in the NG price they charge their customers. The figure was about $400.00 per year onto a household gas bill. Enbridge had to pay a “pretty price” to purchase the NG from Dawn storage (this winter) for that extra bit of gas it needed to stuff into their pipelines to meet their commitments. Trouble was that it wasn’t just a little bit extra, - it was a whole lot extra, - in price and in quantity. That unpleasant experience no doubt led them to conclude that, yes indeed, there was no more cheap NG to be had and to refill storage for next winter they will be finding themselves shipping out of a “whole new door” as far as price is concerned. Enbridge is a major player in this business and I do not think their take on this situation is incorrect. It’s a real wakeup call for those who have believed we will endlessly see NG prices at 4 cents and under.
The U.S has gone through close to 3 trillion cf of storage this winter and we face at least two more weeks of withdrawals. I get the distinct feeling that daily production has not satisfactorily met demand. Although storage acts as a very necessary buffer when demand exceeds production I would have expected "day to day production" ( cold winter aside), to have done far more of the heavy lifting, (given the amount of wells that have been drilled up these last few years), but it didn’t!!! Take the last withdrawal Mar 7th. Why was so much of the demand met from storage? (195Bcf) Going back to last fall, if daily capacity was so robust why wasn't overall storage topped up better? A perfect example was the Dawn Hub. Bentek bulletins last autumn regularly mentioned its storage wouldn’t be filled by winter. Everyone has figured these price spikes and heavy withdrawals were just a “winter thing” and that it would be business as usual in April. Sure, the seasonal pressure will be removed, but will there be capacity to refill storage at last year’s prices? Not likely. It looks like we are losing just a little production at the margin. So maybe we will have to wait until the end of April for better visibility as to what impact it may have on the re-stocking.
And if any of what I say turns out to be correct, it will take some time to fix it, and that fix will come in the form of higher prices, especially now, considering the low storage levels. But that looks to be the most likely scenario to this dilemma. This is a big market and it takes a long time to negotiate a turn. But I think it’s safe to say that it has happened and that the result will be to put a long term bid under NG companies their land values and their stock prices.