Is Spike in Natural Gas Prices Imminent?
Natural gas inventories are at a 10 year low following the recent brutal winter, and price increases are likely, due to potential shortages, particularly in the event of another cold winter, according to a recent article on SeekingAlpha.com.
The article connects the dots between the current low inventory and the anticipated rate of replenishment and detects a problem. To avoid an “adverse spike in gas prices” and return the inventory to the necessary 3,500 billion cubic feet by November, producers would have to add an average of 83 billion cubic feet of gas to storage for 32 weeks, but that rate might not be attainable. In 2013, producers added to inventory at a rate of only 70 billion cubic feet per week.
Making matters worse, the number of rigs drilling for gas is significantly less than it was two years ago, because many producers have switched to drilling for oil instead of natural gas. “Whether a large number of rigs can be shifted to drill for gas in such a short duration is questionable,” the article states.
“To sum it up, all things are lined up in favor of a hike in natural gas prices towards the end of the year if the pumping season does not live up to expectations,” the article states.