Low Storage Levels Impact Natural Gas Price into Winter 2004

04.02.2003

OKLAHOMA CITY – According to a report on natural gas storage levels, economists at C. H. Guernsey & Company estimate the beginning of April levels are untraditionally low impacting price throughout the summer and into next winter.

The report investigates rates of injection into storage in recent summers, and after adjusting for normal weather conditions, the economists estimate 2211 billion cubic feet (Bcf) as the most likely level of net injection from April through October. This would result in a total level of gas in storage at the beginning of November of 2882 Bcf. The result falls short of industry analysts' target, which is approximately 3,000 Bcf of gas in storage by Nov. 1. The 2002 summer net injection was a much lower at 1681 Bcf.

The report states extra gas purchases to replenish storage supplies will impact prices throughout the summer because the low levels create a fluctuation in demand. This in turn causes less gas storage during the season; putting upward pressure on price into winter 2004.

“Perhaps more important, this storage level is so low that at historical rates of injection the gas in storage is likely to fall short of ‘comfortable' storage levels at the beginning of the 2003-04 heating season. If so, this could carry the price impact of the spring storage levels into next winter,” the report states.

It concludes, “Because of the low level of gas in storage, either cooler than normal weather, especially at locations with large gas fired generation loads, or higher than historical production rates, which is not likely, is probably necessary to avoid pricing impacts in the winter 2003-04 heating season.”

The report, “Low Natural Gas Storage Levels May Impact Prices Into the Winter of 2003-04,” authored by Donald Murry, Ph.D. and Zhen Zhu, Ph.D., is available at www.chguernsey-econ.com.

The economists also estimate that the levels at the beginning of April were initially estimated at 671 Bcf.

C. H. Guernsey & Company, celebrating its 75th year of business, offers the highest quality engineering, architectural and consulting solutions to clients in the United States and abroad. GUERNSEY has its headquarters in Oklahoma City with offices in Colorado, Florida, Georgia, Hawaii, Illinois and Texas.

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