What were they thinking exiting the light oil Torquay play?? Now, widespread worries that the industry could get caught short of inventory by the time the upcoming winter heating season starts in November are subsiding, and that is starting to give investors in gas-producing companies jitters.
The industry’s ability to ramp up production from major shale plays, such as the Marcellus in the U.S. Northeast and the Haynesville in Texas and Louisiana, has proven to be a bigger factor than initially thought, said FirstEnergy Capital Corp. analyst Martin King, who is now less bullish on the commodity than he was even four weeks ago.
The U.S. inventory tally – the most influential data for gas traders – is still below year-ago and five-year average volumes, though recent injections, as reported by the U.S. Energy Information Administration, have been hefty.
“I thought absolute storage levels would win out at the end of the day and keep prices elevated, and now the market’s basically turned that on its head and said, ‘What we think is important in terms of pricing gas is looking at the supply growth. Storage is not unimportant, but it’s less important to us,’” Mr. King said.
The market moves highlight just how shale gas fields, which also include the Montney in Northeastern British Columbia, have transformed the industry over the past decade. Energy companies have tapped massive reserves from previously stingy rock layers across North America with horizontal drilling and hydraulic fracturing technology.
Still, as recently as April, many forecasters wagered producers would struggle to refill storage volumes that had been depleted to levels well below the average of the previous five years.
In June, Mr. King had forecast third-quarter gas on the New York Mercantile Exchange to average $5.03 (U.S.) per million British thermal units (mmBtu), projecting the market would need supplies for both air conditioning load and increased storage requirements.
On Friday, it settled at $3.95 per mmBtu, down from $4.71 a month earlier.
The story is much the same north of the border. Canadian benchmark gas at the AECO storage hub in southeastern Alberta sold on Friday for $3.85 (Canadian) a gigajoule, down 16 per cent from a month ago, according to the NGX electronic exchange.
An unusually strong gas outlook has been one of a number of factors that has lifted Canadian oil and gas stocks this year. The Toronto Stock Exchange’s energy group rose was up 24 per cent by mid-June, but has since slipped by 4.5 per cent as the market for the fuel softened.
Encana Corp., Birchcliff Energy Ltd., Cequence Energy Ltd. and NuVista Energy Ltd. are among Canadian gas-weighted producers whose shares have fallen in the past month.
“When you get nine triple-digit injections in a row you really bite into that storage deficit in big chunks. That’s what we’ve been seeing and that’s the dynamic force that really weighs on prices,” said Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates.