Disclaimer: Just to be clear about this, everything I say here in this post (and others about the industry) is based on publicly available information and my own opinions about the future of how the economy and business will evolve. Nothing I say related to the business is based on any particular special knowledge that I have from my employment within the industry. Why? Well, I would say the answer should be obvious, but it's actually quite simple: I do not have any special knowledge about the business.
As regular readers (all 3 of you) may know, the natural gas storage report for the underground gas storage in the United States comes out every Thursday. Once again, the most recent report (though that links to the generic page so if you're looking at this entry more than a couple days later form this posting date, you will be looking at a different chart than the one I am talking about) shows a significant draw down in storage levels in the past two weeks. Finally.
Prior to the decrease in storage levels, the chart had peaked on the week of Nov 27, which was two (or more) weeks later than the peak in the past five years. In absolute terms, the weekly draw down is larger than it has ever been in the last two years (and possibly ever for this time of the year, though I haven't looked at all the numbers). The recent cold weather has played a significant part with this and the continuing storms will drive consumption and pull inventory levels even lower, possibly back to levels more in line with the five-year average. However, if it gets too cold and forces entire shut downs of areas, then people tend to use less gas because entire buildings and schools and offices get closed and who needs to heat an empty building? (Answer: Highly anecdotal personal experience tells me Venezuelans would do that. Really, who else runs their AC at 18 C in the summer and their heat at 26 C in the winter?)
In percentage terms, the number is more or less in line with the drawn downs from the last two years. This is due to the record-high levels of storage than have been accumulated since the Spring. Since late-May, storage levels have been at seasonal highs mostly due to lower industrial demand as a result of the weak economy. The result has been storage levels that are 10-15% higher than the were a year ago.
What does all this mean to the business I'm in, though not directly in since I am not actually there in the States at the moment? It is certainly no secret that the rig count in North America have dropped by more than 50% from their peak levels. While the count has stabilized and it looks like we are now off the bottom by a little bit, the recovery for the industry is likely to be mild at best for another year. For starters, the US economy is still weak, unemployment is systemically high, and current production methods are becoming more efficient. There is also a small, but mildly significant backlog of wells that are either not yet producing or have been shut-in to keep production from out-stripping demand. Those wells will be the first to come online when additional production is required, instead of drilling more wells. The second main factor is liquified natural gas (LNG). Medium and long-term projects that were started several years ago are starting to come online and the North American gas market is "structurally oversupplied" (about halfway down the page).
Duurrr, so what does this really mean for you? Well, it means lower prices for natural gas should stay lower. Though by lower prices, I mean if you are a power plant or commercial user of natural gas. As you can see from the graph in the upper-right of this page, prices are down from their peaks of last year (and they also spiked in 2005/6). Residential consumers will see slightly lower prices, though that can change very quickly. Have fun with that.