Stephen Schork
Editor of
"The Schork Report"

“The level of unemployment is unacceptably high… And will, by all forecasts, remain unacceptably high for a number of years.” -National Economic Council Director, Larry Summers 9/11/09, Politico.com

As we learned last Thursday, a total of 1,741 Bcf of molecules have been injected into underground storage to date. The EIA expects this refill season to end with a record 3.8 Tcf of gas in the ground. That would smash the previous record by ≈260 Bcf or 7.3%. To get there, injections from this point on only have to average 78% of the 5-year average. More importantly, injections have to come within 5% of the five-year average to reach capacity.

Needless to say, we are going to enter this heating season with a glut of molecules. On average, 1.89 Tcf of working gas has been withdrawn over the last five winters, leaving 1.496 Tcf left after the winter. Assuming we start this winter with 3.8 Tcf of gas, then a withdrawal within 5% of the five-year average this winter will still leave between 1.82 and 2.01 Tcf in the ground as we enter 2010 refills. That equates to a starting surplus of between 323 Bcf (+22%) and 512 Bcf (+34%).

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In order to erase the extant surplus of working gas before the next refill season, we would need to see a record delivery this winter, 2.39 Tcf, akin to what we experienced through the 2002-03 winter (see today’s issue of The Schork Report).

Thus, as if on cue… we understand that there is a growing consensus in the weather-geek community that this winter is shaping up like… wait for it… the 2002-03 winter.

However, the U.S. government’s official forecast (see today’s issue of The Schork Report) is not yet on board. Note how NOAA is forecasting an equal-chance (EC) for above, below or normal temperatures in the Mid-Atlantic and Northeast through the Dec, Jan, Feb timestep; but is calling for above average temperatures in the Chicago area, the largest residential gas market in the country.

We are of the opinion that weather forecasts (like price forecasts) beyond two days are useless. That said, long-lead seasonal forecasts for what they are worth (not much) underscore the point that not only do the bulls need a very cold winter this year, but they need it to be cold in the right place… and, according to NOAA, there is a chance that is not going to happen.

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But, just for the sake of argument, let’s assume we get a repeat of the 2002-03 winter. Will this event alone be enough to erase the surplus?

Bottom line, production today is greater, as are imports and demand is weaker than it was seven years ago.

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Stephen Schork is the Editor of, "The Schork Report" and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.