In the Curve – Natural Gas Seasonal Storage Spreads

Recent seasonal averages on the CME NYMEX Henry Hub natural gas forward curve show just an 8 cents/MMBtu spread between next winter (2014/2015) and this summer (2014) – a number that provides very little incentive for storage injection. Things don’t look much better for storage spreads further out on the curve either with an average spread over the next 10 years of just 33 cents/MMBtu. Today we analyze storage spreads over the past 6 years.

In the First Episode in this series we looked at June forward curves for CME NYMEX Henry Hub natural gas futures over the past 6 years. We noted the step change down that resulted from the gas surplus in 2012 that established what is now considered the normal range of gas prices at around $4.70/MMBtu. Even the polar vortex winter of 2013/2014 and its heavy impact on storage levels just created a temporary upward “blip” in prices with a prompt return to lower levels seen in the forward curve next April. We also noted that there has been a dramatic reduction in the size of the seasonal “humps” in forward curves since 2009. This time we look at recent forward curves versus the previous 5 years and dissect them to calculate storage spreads.

To start with, we take another look at the same six June natural gas forward curves for 2009 through 2014 that we looked at last time over their whole history (see Figure #1 in Episode 1). Recall that each curve – one per year from 2009 to 2014 for a single day in early June – has 150 delivery months starting in July of the start year and ending in December 12 years later. The chart in Figure #1 below shows a summary of these curves in relative format – meaning that instead of using the actual month and year of delivery as a dateline, we lined them all up at the same starting line so that at any point in time we are comparing all 6 at the same number of months and years out from their start point. To make the chart easier to interpret we summarized the data by calculating an average for 2009 to 2013 – the 5-year period prior to 2014 as well as a min and max range. The gray area on the chart represents the 5-year range and the blue line is the 5-year average. The red line is the forward curve for June 5, 2014. Note that because all the curves are for the same period of the year (early June) the seasonal “camel humps” in the curves line up – we will come back to that seasonality in a minute.

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