Falling short of the 77 Bcf forecast, the recently reported 72 Bcf natural gas storage raises some big questions and 4.0 Tcf looks increasingly improbable as the EIA estimated end of October 3.903 Tcf storage levels.

From where we sit now, 2013 outlook may look similar, as supply and demand have remained in balance. The reduced number of gas-directed rigs has traditionally been the foundation of the theory that resulting production would instigate a bump in prices. But we’re still yet to see this response from the market. At 437 gas rigs currently in use, this must just be enough to keep the US market flat for the next while, given the existing over-supply in natural gas storage.

Considering other factors that might lead to increased supply, such as the return of profitability for drilling in the sweet spots again, this may take at least two quarters to have any impact on the balance we’re currently in. Additionally, given the state of the market, we likely won’t see any large scale rig commitments from companies until after 2013. This will also take time to show impact on the market, and price.

Looking to the demand side, we know that power use, and weather are the two wild cards, but the EIA is projecting a fairly flat scenario, 2012 – 2013 based on weather trending as ‘normal’. Of course, increased weather variability is becoming the ‘new norm’. Additionally, if we do see any drop of natural gas prices, this will undoubtedly tip the current scales and cut the legs out from under plans to increase the rig count, resulting in an increased risk of natural gas storage depletion in 2013.

Link: http://seekingalpha.com/article/871701-natural-gas-is-the-injection-season-already-in-the-rear-view-mirror