Where Did All The Gas Go?
Posted by zmann on October 15, 2006
The US Energy Information Administration has lost about 1 Tcf of natural gas since 2001.
Let me rephrase that. The left hand of the US Energy Information Administration has lost 1 Tcf of natural gas since 2001. I define the left hand of the EIA as the part that tallies how much gas comes out of the ground and how much is consumed by factories, power plants, and 6-% of you when you turn up the heat this weekend (the rest of you burn heating oil (7%), wood, or just put on another sweater). The left hand keeps track of imports too. Every molecule of gas coming through a pipeline from Canada or by LNG tanker from points around the globe gets counted as part of the US natural gas supply equation.
On the other hand, the right hand of the EIA knows exactly where this gas is. It’s in storage! The right hand runs the weekly survey of the over 400 natural gas storage facilities in the US. Each week they survey over 80% of these facilities which statistically turns out to be enough to come pretty close.
According to the left hand, the chart below is what monthly dry gas production in the US looks like going back to 2000. Notice the dip in 2005 as Katrina and Rita whacked Gulf of Mexico production. If this chart were a stock you’d be looking for an exit. Lower highs, lower lows, etc…
Next we have net imports which is the sum of pipeline and LNG imports less a small amount of exports. Over the period you might be able to detect a slight increase but nothing to write home about.
Now if demand were a stock it would be the poster child for chanelling stocks.com. Demand peaks in winter (cold=use more gas) and troughs in the summer, with a little variation from year to year based on how warm or cold it gets.
To arrive at storage, you simply select a starting point, then subtract demand from supply, right? Lets do that. The chart below is the gas in storage implied by the left hand’s data:
…and then lets compare it to the right hand’s survey data, which is generally accepted to be the “real” level of storage.
Ok, that’s pretty different. Our final graph shows the cumulative impact of how different.
Conclusion: Having had dealings with both the left and right hands of the EIA over the years, I can tell you that the right hand has it easy. The left does its best but gas production is simply scattered over hundreds of thousands of wells, onshore and off, operated by hundreds of drilling companies. If indeed, the left hand is missing production then it means that the recent spate of higher highs in storage is more than just a simple function of mild winters and summers and will continue. More importantly, it means that long term gas prices should continue to decline. How far will be the subject of a future piece but the direction should be down from here. The one catergory of demand that has proved to be highly elastic to gas prices is industrial demand, and as of yet, it has showed no signs of resurrecting itself, even as prices have plunged into the $5 to $6 per Mcf range. Finally, the premise by many WS analysts that the “storage situation will sort itself out when we get some weather” is simply too lame to argue with.