Polar Vortex: Bad for Consumers, Great for Natural Gas
This past winter is certainly one many Midwest and Northeast residents would like to forget. And we’ve still got a few weeks to go.
Residents who heat their homes with natural gas are certainly ready for spring. High natural gas prices have literally burned a big hole in their checkbooks.
Not only was their usage higher this past winter, but the price they paid was as well. That’s what a string of Polar Vortexes will do.
Now all that gas has to be returned to storage. That’s good news for both producers and pipeline operators.
I’ll give you a great way to play this year’s injection season below. First, let’s take a look at the damage this past winter has done.
The widespread prolonged bitter cold resulted in a record-breaking withdrawal of 2.851 trillion cubic feet (Tcf) of natural gas from storage. For the first time in 11 years, storage levels dropped below 1 Tcf.
From November 1, 2013 to March 10, 2014, America’s natural gas consumption averaged 91.2 billion cubic feet per day. That’s a 10% jump over the same period a year ago, and 13% higher than the five-year average.
As a result, the Energy Information Administration (EIA) is forecasting a higher than normal injection season (April-October). Operators are seeking to add 2.5 Tcf back into storage in preparation for next winter.
As you can see from the chart below, the 2014 injection season will likely be a record-setting one.
That’s extremely bullish for natural gas prices. Usually prices for natural gas drop significantly at the end of winter. But not this year.
The idea is to end up with roughly 3.5 Tcf in storage by the end of October. Even with a record inventory build this year, storage levels would still be at their lowest levels since 2008.
The EIA expects natural gas spot prices to be in the low $4 per million British thermal units (MMBtu). I believe they will be higher.
Here’s why: The Environmental Protection Agency’s (EPA) new regulations regarding coal-fired power plant emissions go into effect in April 2015. Many utilities have already shut down their coal-fired plants that are too costly to upgrade.
They’ve replaced them with highly efficient natural gas-fired plants. More will fire up this summer too. That will raise the summertime demand for natural gas, at the same time operators will be trying to rebuild storage levels.
It will be a classic tug-of-war between supply and demand. The result will be an increased level of demand for natural gas.
How to Play the 2014 Injection Season
This company is in the middle of transforming itself. CONSOL Energy (NYSE:CNX) has traditionally focused on coal mining.
However, CONSOL saw the writing on the wall for coal. It sold five of its legacy coalmines.
In its 2014 capital program, CONSOL indicated its target of increasing its natural gas production by 30% per year through 2016. It plans to spend more than half of its $1.5 billion capital budget ($825 million) on natural gas drilling.
The company has plenty of land in the Marcellus shale in Pennsylvania on which to drill. CONSOL expects to drill more than 162 wells in the Marcellus in 2014.
Pipeline companies will be the real beneficiaries of this year’s injection season, however. I just added one to my Wealth From Power portfolio. In all fairness to the subscribers of my Wealth From Power service, I can’t divulge the name here.
But you can learn the name of this company and the others in the Wealth From Power portfolio by signing up for my service. Existing subscribers have experienced gains of as much as 100% in as little as three weeks time.
Profitably yours,
Peter Fallon.
Note from Midas Legacy Editor: Peter retired in his early 50’s after a successful career in the fields of energy and technology. His success as an investor and business owner spans over 40 years, and he has now combined his experience with his knowledge and passion for energy, technology, and investing. He is also the editor of our energy stocks recommendation service, ‘Wealth from Power’, available by invitation only.
