Natural Gas Inventory Forecast

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In June I introduced an analysis looking at the historical relationship of natural gas inventory in October, when it peaks seasonally, and winter price spikes in natural gas. It has been a couple of months and I wanted to revisit natural gas inventories and see if it was time to make a forecast for inventory later this year.

Natural Gas Inventory Forecast Model

I fit an ARIMA time series model to the % Storage Utilization of Working Storage Capacity. As you can imagine, it is a seasonal model since natural gas usage has such a strong seasonal pattern. Below is the long term chart I showed in the previous post from June along with this ARIMA model forecast shown through the end of the year (click on this and all my graphs for a larger view):




Shown in red at the bottom is the storage utilization history back to 1992 along with an ARIMA forecast for storage utilization through December of this year. What you will notice is that October (the peak number) is very high, in fact higher than any number in the history back to 1992. The ARIMA forecast suggests that the October storage utilization will top out at around 93%. This is exceptionally high and well above the 80% threshold that I identified in my analysis in June as being a critical level for a winter price spike. Obviously, this forecast suggests no winter natural gas spike is likely unless some other very exceptional even occurs between now and October (like a major hurricane).


93% would correspond to an October inventory high very near 4,000 Bcf which would be a record. For the statgeeks, the specific ARIMA model here was a 12 month seasonal model with 1 AR term and 1 SAR term.


Here is the EIA (Energy Information Administration) storage chart from their most recent weekly update:

Here in red is the storage volume plotted with the 5 year max and min plotted in the grey band. Also obvious in this plot is how high the storage inventory is this year.

Expect Natural Gas Prices to Continue To Be Weak This Winter

The bottom line is pretty obvious here: it is very unlikely that we will get a price spike this winter in natural gas. I won't say that we will necessarily see natural gas inventories get as high as the ARIMA forecast model suggests. The ARIMA model is a statistical based model only and if inventories really approach that high of a level, along with weak prices, market forces may do some more dramatic things this year to cut production (or export it if possible) which would never allow the inventory levels to get quite so high. But at this point, unless we get a major Hurricane in the gulf, or something else extraordinary that impacts natural gas production, it looks quite certain that inventories will be very high and prices therefore will be weak this winter.
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