Analyst: Slowing injection pace won’t erase capacity concerns

GAS DAILY - Thursday, July 6, 2006

      A marked slowdown in gas storage injections over the past month has not erased concerns about tight storage capacity later this summer, Fimat analyst Antoine Halff said in a report this week.

      “Although June weekly injections have remained below the average of the last 10 years, concerns that market participants may run out of storage space before the start of the heating season will continue to put downward pressure on prices, offsetting the impact of strong cooling demand and robust oil prices,” Halff predicted.

     Over the past four weeks, “warmer-than-average weather has fueled strong cooling demand for electricity, and thus robust utility demand for natural gas. That, in turn, has helped keep net injections of natural gas into underground storage relatively low for the season,” Halff said. That trend has “helped mitigate somewhat concerns that there may not be enough available storage capacity … to accommodate normal gas injections in the run-up to the November start of the heating season.”

     As a result, “storage projections for the rest of the summer are now somewhat less alarming than they were a month ago based on the assumption of ‘normal’ weekly injections,” he said. “But while they are marginally less pressing, concerns about storage capacity remain.”

     Based on Fimat’s projection of a 70-Bcf build for the week ending June 30, storage inventories at the year’s halfway point stand roughly 33% higher than the 10-year average. “Weekly builds will need to remain well below average for the remainder of the summer and the early autumn months to avoid bumping against capacity limits,” Halff said.

     “Although oil prices have been rallying back to near record levels on the back of renewed concerns about strong, resilient demand and slowing supply growth, natural gas prices have failed to rise in sympathy with the oil complex. That relative weakness in natural gas prices likely reflects storage capacity considerations,” Halff concluded. “Storage capacity constraints will keep acting as an offset, counter-balancing the impact of otherwise bullish factors.”

MD