Schork Outlook: 'Jekyll and Hyde' NatGas Market

Who knew Dr. Jekyll traded gas?

Yesterday’s (Wednesday's) EIA report effectively wraps up what has been a rather Jekyll and Hyde refill season. According to the monthly numbers from the EIA, underground stores of working gas increased by a staggering 1.079 Tcf through the first phase (April to June) of this season. Based on the variation in the time series we have seen since the start of the decade, we would have expected an injection of no more than 1.064 Tcf. As such, the industry entered the dog days of summer in a very comfortable position.

In hindsight, that was extraordinarily fortunate, given record cooling demand in July and August. To wit, injections mirrored the great start to the season. Through the second phase injections totaled only 409.24 Bcf as temperatures soared.

Again, based on the metrics since the start of the decade we would have been comfortable with an injection of anywhere from 683.23 down to 448.62 Bcf. We instead received 39.4 fewer Bcf.

This is when gas bulls had a seemingly great opportunity.

After all, implied cooling demand spiked in May and lasted through September, yet spot Nymex gas peaked in mid-June at 5.196 and then plunged 26% (with rolls) through the end of the summer. We saw the exact same movie last winter when heating demand surged to record levels and yet spot gas peaked in the first week of January and then plunged 38% through the end of the season.

As discussed in today’s issue of The Schork Report, the recurring theme is that gas values tend to peak before demand does. In other words, this year was no different from other years. Therefore, was have been waiting and postulating over the last five weeks as to when we were going to see this season’s event. Thus, perhaps we are in the midst of it right now. Enjoy it while it lasts.

The rebuild through the first two phases of this summer summed the second highest level on record, 1.49 Tcf and as a result, storage climbed to 3.15 Tcf at the end of August. As far as the third and final phase of the refill season goes, preliminary numbers from the government (EIA-912) imply an injection of around 349 Bcf in September and another 341 Bcf for October. The injection for September is near the higher end of its historical range while the number for October is well above it.

In this vein, we can sum up this season as one that entered as Dr. Jekyll, turned into Mr. Hyde and then morphed back to Jekyll. As a result — and with all due apologies to Robert Louis Stevenson — we are now on the cusp of the winter, with a record load of gas stuffed into the ground.


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