Soaring Gas Price … Are You in It to Win It with Storage?
Has anyone noticed what happened to the price of natural gas in recent weeks!? Of course, you have. The question is whether you are euphoric because your business stands to benefit? The blog title gives away what I am referring to. For some of you, the topic of storage is pedestrian – as in, “Duh!”. Yet, there are a great many natural gas businesses not taking advantage of storage, making no time like the present to showcase the potential of natural gas storage to your business.
Business benefits of natural gas storage include:
- Improve margins: Buy low during the summer and sell high during the winter
- Sidestep financial loss: Inject into storage when counterparties / end users have leftover gas
- Maximize income: Buy / sell day-to-day price fluctuations
- Avoid spot market highs: Retain sufficient storage for when end user demand and spot prices are at their highest
Let’s contrast the use of storage with storage abstinence … Marketer A uses natural gas storage, whilst Marketer B does not. Not too long ago, when the price of natural gas sat in the $1.50 range, Marketer A, paying attention to the price of oil bottoming out and oil production grinding to a halt, recognized the corresponding effect on natural gas production. Looking ahead to the coming winter months, Marketer A realized demand for natural gas would rise and the laws of supply and demand would cause natural gas prices to rise, even double, as soon as temperatures dropped, natural gas usage started rising and supply was relatively low. Buying gas at rock bottom prices, Marketer A injected Bcf into storage in anticipation of the future opportunity to sell at current and rising market rates. Hence, “Duh!” All the while, Marketer B, not utilizing storage, sat on the sidelines – no storage injection, no enhanced margin opportunity, and at the mercy of the spot market when forecasting is off the mark.
So why are there a great many Marketer B types out there? Typically, it is because Marketers:
- aren’t familiar with how to manage storage
- aren’t wholesale scheduling
- don’t have contracts in place with storage facilities
- don’t have the capital or want the capital exposure of buying and sitting on gas inventory
Each and all of these are entirely manageable by any-sized natural gas business. All it takes is the know-how and the operational tools to manage storage. I would be remiss not to identify the risks associated with storage; namely, gas price decline after injecting into storage and/or injecting too much into storage and having to sit on the inventory until demand draws it out, not to mention fees related to storage. In fact, this is what happened last year when the winter was warmer than expected and Covid-19 hit, causing many marketers to have a rough year. Despite this, even a conservative storage strategy is better than no storage strategy.
Marketers, Producers, LDCs, Utilities, and Pipelines face increasing competitive and compliance pressures, requiring increased operational efficiency, data integrity and process improvement. Their operational systems must support this, but most do not. Engage us and we will show you how to benefit from storage and so much more. It’s what we do for natural gas companies, and we are experts in our field.
– Ken
