Storage and the last decade of build-out in the NG marketYes, the 182Bcf. drawdown yesterday was great. Next week will even be better and if the weather holds as forecast on the U.S power demand map, we could in fact, get 3 nice drawdowns in a row. It would be nice to see a cool trillion cu ft. out the door in early winter.
Given the buildout of the NG industry this last decade it’s now more robust than anything seen previously, especially so in the last 3 years! Yes, there’s abundant supply, but there’s also abundant demand. IMO, storage capacity has not kept up. The argument goes that the gas in all the new pipe is an added form of storage; but it’s only a theory and has not been stress tested under extreme weather conditions. The so-so, (3790 Bcf. lower 48) top up to start winter might well set things up for its first test. Given the size of today’s market, it wouldn’t be surprising to see some storage withdrawals top 300+ Bcf in some severe weather weeks, and that would be an all-time first!
The basic tenet behind pipelines has not changed over the years despite the industry having shed several skins morphing into today’s impressive size. It’s always been the most economical size of pipe used to bring the NG from the producing areas to markets based on year-round shipping; not being of sufficient size to satisfy peak demand, it gets around that problem by moving a sizeable portion of NG to storage centers close to major markets beforehand. Yes, it also “line packs”, but that too is no different than in other years. So, to credit what’s in these pipes as being somehow equal in every degree to “good old-time storage”, might be one helluva of a stretch.
One thing for sure, priced at $2.70 Henry Hub, the goddamned gas will be absolutely flyin’ out the door. I don’t even think they can burn coal for that price and nuclear can’t compete either. So, the longer it stays down at this level the better it is for us to blow out more storage. In the winter of 2013-14, 2 trillion cu. ft. was withdrawn from storage. It took well over a year to replenish those stocks.
I’m not saying we’ll get a repeat of winter 2013-14, that can only be assessed after it’s over; but what I am saying, is that the very size and heft of this market in combination with winter peak demand may cause it to exhibit a few wrinkles that haven’t been anticipated.