Meandering aimlessly. Not our words, but we have to agree. NYMEX has been adrift the last few weeks, as the hoped-for cold spell continues to not materialize and 20+ Bcf continues to be injected into storage. Today’s report came in right at the expected level…20 Bcf on the nose…and speculation concerning topping out is once again making its way into the conversation. We’re getting very, very close to full.

At this point, the market is taking it day by day: a bit of short covering one day, a selloff the next. The trend continues downward, albeit slowly and…one senses…reluctantly.

Yet utility bills remain a mixed bag across the country. The reality of energy markets involves complexities well beyond the increasingly complex world of NYMEX. While some are passing savings on to consumers, others are using the current dip in prices as a way to generate substantial income with “minor” rate  increases. Our neighbors to the north in Wisconsin are looking at a rate increase for electricity. The justification involves, in part, expenses tied to the construction of new…you guessed it…coal-fired plants. NYMEX may may measure its gains and losses by the minute, but the reality of the energy consumer has to include a much wider timeframe, and a much wider frame of reference.

Meanwhile, the International Energy Agency released its World Energy Outlook last week. One of the figures was fairly staggering: the estimates for long-term recoverable natural gas resources was listed at 850 trillion cubic meters. That’s 30,000 trillion cubic feet of natural gas.

If you remember back to our earlier discussions of natural gas terminology, “recoverable” means that we know how to get it, and “resource” means we’re pretty sure, rather than absolutely sure, that it’s there.

The important thing about this figure is that it’s double the figure released last year.

To put this in perspective, this equates to 280 years worth of supply, based on current worldwide energy use. The change is the result of the growing acceptance that progress made in recovery of shale gas and other previously “unrecoverable” sources is not just a flash in the pan, but the future of the natural gas industry.

The questions this raises about the future of energy use, both for the world and for the United States (don’t forget, our shale gas reserves are enormous). It involves not only questions about price stability and the role of the financial sector in energy markets, but also the global warming debate…natural gas may be a fossil fuel, but it’s substantially cleaner than oil or coal…and questions of national security. There is also the ever more troubling issue of the environmental impact of the new techniques. 

As we continue to monitor the storage situation, the next few weeks promise to be very interesting. After that, things will get even more interesting.

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The weekly natural gas storage report won’t be released until tomorrow, due to Veteran’s Day, so we’ll just have to wait and see how NYMEX reacts. Predictions are for a modest injection of 15 Bcf.

Meanwhile, it appears that the latest rally is ending…not with a bang, but a whimper. This week continued the gentle downward trend of the last two. The market appears to be testing resistance: looking for a comfortable bottom where it can sit and twiddle its thumbs while it waits for some kind of sign to tell it where things are heading. Clearly, the traders who bet on a cold winter are feeling the cold…in their feet. Gradually, the rally seems to be losing steam.

Not that all that won’t change if the storage report doesn’t meet expectations.

There has also been a marked drop in spot prices, perhaps indicating that faith in the rally is beginning to peter out. Difficult to tell which is the dog and which is the tail in this situation.

You’d figure the market could use a good old-fashioned hurricane, and in fact it got one this week. Hurricane Ida moved through the Gulf, and while it didn’t do much damage it did cause a fair number of shutdowns, including at the Independence Hub. NYMEX was unimpressed. Makes us sort of nostalgic for the days when a hurricane actually made a difference.

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The weekly storage report continues to be a bit of a tease. Today’s report came in…stop me if you’ve heard this before…about 2 Bcf below projections, at 29 Bcf. That brings us within 100 Bcf of the theoretical storage limit. Some people are seeing the dropdown in storage rates for the last month as proof that the limit won’t be reached; others are not so sure. An awful lot of factors are in play.

It seems that each week we end up saying that next week will tell the story, so we’ll skip that this week. Three more weeks of the current injection levels, and the next week actually will.

Meanwhile, NYMEX continues to settle itself into a position of wait and see. The front month price has drifted down to within traditional range of spot prices, and forward prices through July are doing a pretty good impression of a table top. Which raises an interesting new wrinkle looking towards 2010.

Price stability. What a concept.

We’ve talked a lot about boom or bust scenarios over the past few weeks, but there is also a third scenario to consider: fairly stable prices for a while. As we’ve mentioned in previous posts, natural gas producers are starting to take steps to make that a possibility. There’s no question they’d like to consolidate the gains that have pushed prices back to a level where they can make a living, and some have already set up contracts which forswear runaway profits in exchange for survivable floors. The concept of a fairly unexciting natural gas market would make a lot of people very happy.

Which doesn’t mean it’s going to happen.

Meanwhile, we’re seeing more stories of state governments trying to turn favorable energy prices into a solution for their budget crunches. Lower Utility bills are a tempting target for insertion of innocuously-named fees and charges (taxes? We didn’t say anything about taxes…). The machinations involved are fairly complex….most states have laws that make it very hard to monkey with utility charges…but this bears watching. A lot of consumers who are still on the Utility may find that the savings they were anticipating heading into 2010 don’t quite materialize in their bills. If you’d like to know more about your options, Cost Containment Intl. would love to talk.

There is another story which we feel bears watching moving forward. We’ve talked a lot about the recent developments in shale mining…natural gas reserves held in fairly hard rock layers. Extraction takes place using a technique called “fracking:” wells are drilled into the rock layers, and a mixture of water and a complex cocktail of chemicals is either pumped in at high pressure or released by small explosions into the shale, fracturing the rock and freeing the natural gas. The chemical mixes used in fracking are closely-guarded secrets which have never been publicly reported, but the assumption is that they’re not recommended for human consumption. Which is why the stories we are beginning to see about the quality of the water taken from drinking wells located near gas fields are a legitimate cause for concern.

We keep looking for the natural gas picture to get simpler, but it doesn’t seem like that’s going to happen. NYMEX may be looking flat right now, but there are plenty of potential bumps in the road ahead.

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