Therefore, current storage models have yet to identify the fundamental shift currently underway in the gas market, i.e. the advent of nonconventional onshore production impacting the supply side.
While weather-related demand is relatively clear, the supply side is not. The market knows we have a lot of molecules stuffed into the ground, but the market also witnessed an unprecedented drain of molecules last month. We have only seen four deliveries thus far this season, as opposed to eight at the start of a typical season. However, those four deliveries have been massive, 20.04 Bcf/d as opposed to last year’s 17.2 Bcf/d average for the same four weeks and the 16.5 Bcf/d average for the five seasons prior to that.
On the other hand, over the first four weeks of this season we saw four straight injections totaling 49 Bcf or 1.8 Bcf/d. That compares to last year’s 1.9 Bcf/d average delivery and the 3.8 Bcf/d average delivery for the 2004-08 timestep.
To confuse matters more, marketed production, which dropped by a seasonally high 3.17 Bcf/d in September, bounced back by 3.03 Bcf/d in October. The EIA noted that Louisiana reported strong numbers for October on extant drilling in the Haynesville shale and Wyoming production surged (+7.9%) to levels not seen since June “… as wells shut-in due to unfavorable market conditions were brought back on line…” On the other hand, the decline in production last September was noteworthy given the limited number of hurricane related shut-ins to production. For instance, the 2009 Atlantic hurricane season was the first since 2006 when hurricane force winds failed to reach the United States. Yet, the decline in production in 2009, 3.17 Bcf/d was nearly 2½× greater than in 2006, 1.3 Bcf/d. To be fair, the industry was still scrambling in the fall of 2006 to recover production lost to Hurricane Ivan in 2004 and the 2005 season, the most active Atlantic hurricane season on record.
Bottom line, the sharp production swing from last August to September to October has put the U.S. gas market on notice, i.e. producers might have attained their dy/dx moment. That is to say, it took them all of 2009 to figure it out, but they now have a better grasp on the correct proportion between the growing of production and the growing of output. That is important. As discussed an analyzed in many past issue of The Schork Report, last year was brutal for a lot of producers. They are obviously not in the mood to see a repeat this year.
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.