Capstone Energy Services

News

Winter Weather Approaches

November 11th, 2010

OMAHA (Capstone Energy Services) – Weather forecast from the National Weather Service and some independent forecasters are now calling for much colder than normal temperatures throughout most of the country during the last half of November. Traders in natural gas futures responded to the weather forecast news by liquidating existing short positions and taking long positions creating significant upward price move. After closing at $3.836 per MMbtu on the 3rd, the December contract moved steadily up to close at $4.21 per MMbtu by the 10th. The one year average price moved up from $4.176 to $4.408 per MMbtu. This pre-season upward move is a normal occurrence, one that traders had been anticipating for several weeks. Also, adding to the market strength have been some positive economic news suggesting some improvements in the economic recovery.

The winter weather price momentum was at least slowed this Wednesday as the Energy Information Administration issued the weekly natural gas storage report showing more record high inventory levels. Total gas in storage as of November 6th is 3,840 Bcf, 31 Bcf higher than last year and 342 higher than the five year average. These high inventories are symptomatic of the surplus of natural gas on the market that will require both a colder than normal winter and a stronger than expected economic recovery to eliminate the oversupply of natural gas by the end of 2011. As the winter progresses, unless there is a clear sign that these inventories are being reduced significantly faster than expected, prices will likely return to the mid to upper $3.00 level.

Even with the recent rise in prices, natural gas costs are still at the low end of the five year price range and many producers are struggling with the low prices. This environment creates a consolidation opportunity for energy companies to invest or expand investments in areas where they expect a long term financial return. The acquisition of Atlas Oil by Chevron this week is such an investment, demonstrating a Chevron commitment to the domestic natural gas industry and to shale exploration and production. As the economy recovers, so will the natural gas industry, creating higher demand and prices for natural gas and creating an excellent return on investment for Chevron. The question is: how quickly will this turnaround occur?

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By Ed Freeman

Glossary Terms

Glossary Terms

Nominated Volume

The physical quantity of gas requested, typically in MMBtu/day, for a specific contract or for all contracts at a specific point.

Marketing Affiliate

A marketing company that has corporate ties to an interstate pipeline, an intrastate pipeline, or a local distribution company.

Energy Only Providers

Power marketers or other electricity vendors who provide and bill for only the energy component of the electricity consumed by the end-use customer.

Therm

A unit of heating value equivalent to 100,000 British thermal units (Btu).

Real Power

The component of electric power that performs work, typically measured in kilowatts (kW) or megawatts (MW)--sometimes referred to as Active Power.

Injection (Storage)

The process of delivering natural gas into a storage field for future delivery and use.

Price Ceiling

Statutory maximum lawful prices for various categories of natural gas, including gas destined for both the intrastate and interstate markets.

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Energy Delivery Chains

Energy Delivery Chains

Find out more about how your energy is produced and delivered to your business.

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Energy & the Environment

Energy & the Environment

How we assist clients in responding to national environmental concerns.

  • Initiate and manage a "Green" energy procurement program
  • Evaluate national legislative and regulatory initiatives
  • Research state and local energy efficiency programs and incentives
  • Track energy use and related emissions estimate