Friday, November 11, 2011

We Will Be Exploring the Limits of Storage for Natural Gas

So I've been watching storage for the natty for some time now, and it struck me that I should put up a post on it as I think we are about to explore the physical limits of the natural gas storage system in the USA...

Thanks to the good people at the EIA, I downloaded the data for natural gas storage levels from their weekly report (Thursday mornings). I constructed a 4 week moving average to smooth things out a tad and then looked at the month over month change on a percentage basis, with each year set up as an overlay.

Short version: we are coming in 'hot', and in absolute terms the last storage report was 0.2% under the previous all time high, I expect we punch through next week (I may get expelled from the economics profession for calling both direction and time). Will coal switching provide sufficient demand to set the price floor this time around?

I've added this plot to illustrate what I have been talking about - here are 12 month moving averages for natural gas production and the front month Henry Hub natural gas contract - note the divergence and even the accelerating natural gas production as prices grind lower... and lower...

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