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The September natural gas wholesale contract was lower by $0.071 yesterday settling at $3.922 on the day. It seems that buyers and sellers have been fighting it out in this price area below $4.00 in the last two weeks. Today’s EIA storage figure will dictate how natural gas will progress the rest of the week and next week since Labor Day Holiday is usually a weak demand period as demand slackens due to turndowns in manufacturing, school and office buildings closings. Hurricane Irene will also dampen electricity demand in the Northeast starting this weekend with cloud cover and rain chances starting to materialize in the Northeast.
In the lone star state this morning, a prolonged drought, looming environmental rules and shortcomings in the incentives for building new power plants could cause even more problems with Texas' electric grid in the next year. A number of Texas power plants may need to cut back operations or shut down if the drought continues into the fall, as water levels in many plant cooling reservoirs continue to drop, according to an Ercot spokesperson. At least one plant already has had to cut back during the record-breaking year for temperatures and power demand. ERCOT has declared power emergencies several times this summer including Wednesday as record demand met unplanned power plant outages. Plant operators say the long, hot summer has meant more wear-and-tear due to longer operating hours for power plants. On Aug. 4, the state came close to initiating rolling blackouts when the margin between power supply and demand grew too thin. Meanwhile, industry has been hesitant to build new power plants in Texas because plant operators lack confidence they can get a good return on their investments. In many parts of the country, companies are paid to have power plants available to generate year-round, an arrangement called a capacity market. Texas is an energy-only market, meaning market prices for wholesale power are supposed to provide the incentive for plant operators to keep units online and to build new ones.
It’s Thursday again and you know the drill, as we do on every Thursday, we’ll focus the rest of the commentary on the storage levels. U.S. natural gas inventories are expected to have climbed by 72 billion cubic feet last week, a Reuter’s poll of industry traders and analysts showed on Wednesday. There were 27 participants in the Reuters poll, with injection estimates ranging from 61 bcf to 80 bcf. Storage rose an adjusted 38 bcf for the same week last year. The five-year average build for that week is 55 bcf.
In last week's report, for the week ended Aug. 12, overall storage climbed 50 bcf to 2.833 trillion cubic feet, slightly above the Reuters estimate of 49 bcf but well above the year-ago gain of 28 bcf and the five-year average increase for that week of 43 bcf. The build trimmed the inventory shortfall relative to last year for the second time in three weeks, cutting the total by 22 bcf to 175 bcf, or 6 percent. It also narrowed the gap to the five-year average by 7 bcf to 73 bcf, or 2.5 percent. While the storage deficit to year-ago is still big, most traders expect it to shrink as late summer weather turns milder and slows demand. The gap peaked this year at 275 on June 10.
A build this morning at the Reuters estimate would sharply trim the shortfall relative to last year by 34 bcf to 141 bcf, or 4.6 percent, and reduce the deficit to the five-year average by 17 bcf to 56 bcf, or 1.9 percent. In the past four reports, total stocks rose 162 bcf, or 41 bcf per week, versus a 124 bcf adjusted build for the same one-month period last year and a 176-bcf five-year average gain for that period. Early injection estimates for next week's EIA report range from 63 bcf to 75 bcf versus a year-ago build of 52 bcf and a five-year average increase for that week of 60 bcf.
If weekly stock builds through October match the five-year average pace, inventories will begin next heating season with 3.53 tcf, 8.1 percent below last November's record high of 3.84 tcf and 2 percent below average for that time of year. To get inventories above last year's high by Nov. 1, weekly injections must average 84 bcf for the remaining 12 weeks of the stock building season, well above the five-year average of 58 bcf for that period.
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