Is There a Looming Natural Gas Storage Shortfall?

A predicted natural gas storage shortfall going into the 2014-2015 winter heating period could be an investor opportunity.

Jun 12, 2014 at 3:34PM

The U.S. Energy Information Administration (EIA) is projecting a nearly 10% natural gas storage shortfall this coming November from the same time last year. This is after predicted record gas injections to replenish a 50% storage shortfall reported in March.

Brutal winter increased demand
Because of high demand brought on by the brutal 2013-2014 winter, natural gas stocks are drastically reduced, falling to a March low of 857 billion cubic feet (Bcf) from a running five-year average of 1,577 Bcf for the same month.

Eia Ng Demand Chart

Source: Energy Information Administration (EIA) Short-Term Energy Outlook: June 2014

According to the EIA March 2014 report:

The forecasted April-to-October storage build of nearly 2,500 Bcf would surpass the previous record injection season net inventory build (April-October, 2001) by more than 90 Bcf, to end the injection season at 3,459 Bcf. While the projected storage build for the upcoming injection season would be a record, total Lower 48 end-October inventories in 2014 would still be at their lowest level since 2008. High injections would not fully erase the deficit in storage volumes caused by this winter's heavy withdrawals.

Quiet hurricane season and mild winter predicted
The June EIA natural gas short-term energy outlook report predicts a November 2014 storage shortfall of 9.6%. That same report is estimating a relatively quiet hurricane season based on the National Oceanic and Atmospheric Administration (NOAA) season predictions (with resulting reduced negative impacts on energy production):

 NOAA predicts a relatively quiet hurricane season this year with near- to below-normal tropical weather activity in the Atlantic basin... Despite the potential for significant outages if a strong hurricane were to pass through the GOM [Gulf of Mexico] producing region, the overall effect on U.S. supply would not be as severe as in past years because the share of total U.S. natural gas production originating in the GOM has declined sharply.

In addition, the EIA predicts near normal winter weather for 2015: "In 2015, total natural gas consumption falls by 0.2 Bcf/d as a return to near-normal winter weather contributes to lower residential and commercial consumption." 

Predicting the future?
However, predicting long-term weather outcomes is as tenuous as predicting the brackets and winner of the NCAA college basketball championship. Investments that can weather the storms, or the calms as the EIA predicts, are worth considering. Natural gas storage is critical in any weather and life-saving in bad weather. The three storage companies suggested here have large capacities, volumes, and the pipeline interconnects to major markets to help meet that demand. All three have recent analyst upgrade/buy recommendations.

Plains All American Pipeline, L.P. (NYSE:PAA) owns and operates both the Pine Prairie Energy Center in Louisiana, and Blue Water Gas Storage in Michigan. The EIA 2014 storage facility report shows that Pine Prairie has the highest maximum daily delivery of all of their listed facilities. Pine Prairie has interconnects with nine interstate pipelines and serves virtually all of the eastern U.S. markets. Blue Water serves the Northeast and Midwest U.S markets with six pipeline interconnects.

Boardwalk Pipeline Partners, L.P. (NYSE:BWP) has the second largest maximum daily delivery of all of the EIA listed facilities  and owns the Petal Gas Storage facility in Mississippi. Petal interconnects to major gas pipelines and Boardwalk reports operational control of over 14,000 miles of pipeline.

Spectra Energy (NYSE:SE) owns the Egan Gas Storage facility in Louisiana. Egan has the fifth highest maximum daily delivery rate, serving various markets through 10 interconnects to major pipelines.

No one can predict the future, but companies with all-weather facilities can be a good bet regardless of the storms ahead.
 

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Jonathan Cook has no position in any stocks mentioned. The Motley Fool recommends Spectra Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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