stupidity continues, page-7

re: jocam Re: High Natural Gas Prices

I'll take a crack at why the futures prices are high in January, February, and March.

Currently, 80% of demand in winter is met by current production from wells. The other 20% is met from storage.

First, Production.

There have been numerous posts on various boards that indicate production of NG in the US has been falling year on year. With production falling, winter demand will have to met more from storage - hence the current high cash prices by those wanting to insure that they have supply in winter - buying now for storage and use in winter. Many don't want to be caught short...

Combined with this is the same old story of low pipeline pressure in summer allowing marginal wells to flow and produce. In winter the same wells need compression to produce or they don't flow. Probably many of these wells don't have they needed compression and don't contribute in winter.

Add in the possibility of another good cold snap up in Canada during the winter. Last year it was so cold that some of the wells froze and flow from the wells was cut off. This year there area whole bunch of wells that have also been shut in due to the Alberta governments orders because of the Oil Sands projects and the impact of depleting gas in those areas - can't remember the number, but some significant amount.

The last two weeks of injections in Canada have fallen off a cliff. Maybe there will be a withdrawl in the next report - some three weeks ahead of normal...

Lastly, Robry825 hasn't put in Canadian gas flows into his reports, but it will be very interesting to see the numbers when he starts them up again... Canada is a major source of NG for the US in winter.

Second as you indicated it does look like industrial demand is up compared to last year. According to Robry825's figures up about 30% compared to last year, but that is only about 1 BCF per day compared to 750 mmcf last year.

Third, right now there are 9770 MW of nuclear reactor generating capacity down for scheduled refueling and maintenance. That number goes up to 11820 MW on 10/16 and peaks out at 12150 MW on 10/28. Add in the usual seasonal slow down in hydro generation and maybe a little more NG is being used than normal.

Lastly, the Ivan hurricane damage is doing its little bit to help along with high crude prices.