The Reported Injection for the Week Ending September 24, 2004
In its U.S. working gas in storage survey, the Energy Information Administration (EIA) reported a net injection of 69 Bcf, in-line with our estimate of 69 Bcf and just below the Bloomberg consensus of 72 Bcf. The same-week average injection was 73 Bcf.
The current supply in storage is 3,011 Bcf, 183 Bcf above normal
Based on our supply/demand model, we expect storage at the end of the injection season (i.e., around November 1) to be 3,216 Bcf, above the average of 3,061 Bcf.
The consuming East, consuming West and Producing regions ended with 1,752 Bcf, 392 Bcf, and 867 Bcf versus last week's 1,704 Bcf, 383 Bcf, and 855 Bcf, respectively. The same-week five-year average storage in the East is 1,691 Bcf, in the West is 359 Bcf, and in the Producing region is 778 Bcf.
Natural Gas Outlook
In the near term, we think the market will focus on the potential impact of winter weather on gas prices as well as other factors: estimates regarding domestic natural gas production, LNG imports, and changes in industrial demand.
We think the natural gas market generally remains tight, with U.S. production continuing to decline (YoY down 1.6% in 2004) and non-weather demand increasing. Because of the mild summer and slowing economy, though, there is some slack in the market and gas storage is well above average levels.
In our natural gas supply/demand model, we are assuming average weather this winter. We think that average temperatures or below-average temperatures would increase residential demand for gas for home-heating and could lead to gas price spikes. However, investors need to be aware of early indications of an El Nino event this winter. Typically, an El Nino causes a warmer-than-average winter in th e U.S. We think that a winter that has much higher-than-average temperatures could keep gas prices below $5. NOAA has indicated a 50% chance of an El Nino event this winter based on oceanic and atmospheric patterns.
Investors should also be aware of the recent trend of warmer-than-average weather, including winter weather. Out of the last seven winters, four winters rank in the top ten for warmest winters on record (#1 2000, #2 1999, #4 1998, and #9 2002). The record includes 110 years, so 2000 was the warmest winter in 110 years.