The U.S. Energy Information Administration (EIA) reported an injection of 114 Bcf this week, marking the third straight triple-digit injection of the season. This injection dwarfs the 88 Bcf reported this week last year and is well above the five-year average of 93 Bcf. Despite the strength of this storage build, it seems the market is still concerned over the prospect of closing the gap between the 1.38 Tcf of gas currently in working storage and the 3.4 Tcf needed by November 1st to keep up with Winter demand, as evidenced by the rise in energy prices for this week in review.
For this seven day period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) increased 2.8% closing at $0.4450/therm, while the 12-month average price for peak power on the PJM also increased 2%.
Analysts are split over where energy prices will go from here. Some believe that it is likely that storage numbers will remain strong over the next several weeks because the sweltering summer temperatures have yet to set in. Others are wary that the market has gotten too comfortable with increased production numbers and cite possible pipeline capacity issues. They contend that it won't matter how much we produce if we can't move it.
Additionally, many analysts are concerned that the market is underestimating the demand component of power burn, with many generators opting to burn natural gas instead of coal due to its low price and seemingly abundant supply. In fact, the EIA has estimated that current coal inventories sit approximately 31% below last year's levels. Considering this low supply of coal the continued dependence on natural gas during a strong heat wave could jeopardize our ability to maintain strong injections throughout the summer.
So where do we go from here? For now it seems the answer is highly dependent on the summer weather. Stay tuned.