Morning Thoughts – Oldinvestor

Today’s post comes with a warning, I would like to hear your thoughts on this on twitter. Thanks.

I’m throwing a lot of data out here, and it’s a mess, I don’t have much time to get all this down and organize it. To compound on my postings yesterday, I’m theorizing that South Central non-salt storage capacity is in danger of causing NG pricing to go negative just as CL pricing did. The one major difference is that the US controls its own fate as to whether or not this happens, and I’ve not heard of any governmental intervention yet…. Let’s kick this off.

Summer Inventory builds at RonHenergy.com

Above is Summer inventory build across all regions; 2014 and 2019 were two of the strongest building years of natgas storage in history. Granted, the market keeps growing and storage capacity isn’t growing to match the size of the market. So we’ve upgraded from a Dodge Neon to a 2500 Ram, and kept the same size fuel tank. It takes less to fill it and empty it. Now to break it down by region. I’m not sure who decided on these regions for storage, but EIA has 5 regions, Pacific, Mountain, Midwest, South Central, and East. Within South Central storage (also being the biggest overall), it is divided between salt caverns and non-salt storage. This is all underground. Below I’m showing South Central storage, both salt and non-salt, then the two combined all in one chart. Each of these charts are in comparison to 5 year averages for each (sub) region.

Regional US Storage per EIA.gov
South Central storage vs their respective 5yr averages at RonHenergy.com

Below here, I”m sharing the same as above, but for East, and Midwest regions. Mountain and Pacific regions don’t come close and aren’t worth mentioning.

East and Midwest regional storage vs their respective 5 yr averages at RonHenergy.com

Below here is South Central as a whole, comparing 2015, 2016, 2019 and 2020. In 2015, storage built fast and in 2016, production turned and dropped that year. I’m showing 2019 just to see what the market looked like last year, as far s the trend for the South central region. As you can see the trend right now is very scary.

Perspective – South Central Storage vs the strongest builds in history at RonHenergy.com

In fact, this chart scares the shit out of me to be long prompt NG, UGAZ or UNG. July contract ends today. UNG funds are in August contract right now, and will remain this way until…

UNG roll dates at USCF Investments

So UNG will remain in August contract until it starts rolling on July 15th. UGAZ starts its roll 5th trading day of the new month, 5 day roll. If I’m assuming July 3rd will be a trading day, maybe not… July 7th or 8th will be the start of the roll for UGAZ… This leave around 2 more weeks that these ETFs will remain influenced by an NG contract that has the potential to go negative. South central NG storage is near 85% maximum capacity, let’s review.

South Central storage is home to the Permian basin and Eagle Ford, the strongest producing areas of associated gas. Just yesterday I hear of wells that were flaring were the majority of wells to be shut in. South Central is also home to Cheneire Energy, with Sabine Pass and Corpus Christi with the biggest drops in LNG exports. Lastly; Henry Hub, the go to for NYMEX pricing of Natural Gas.

We can’t just assume that Natgas is going to suffer the same fate as Oil, but we can stay aware of what happened, and remain cautious. Or paranoid in my case.

Weekly storage at Cushing, OK found at EIA.gov

Also according to EIA, found here, Cushing capacity is 75,835 Mbbls. Week ending April 24, Cushing storage was at 63,378 Mbbls, or roughly 84% of capacity. April 20 was when CL prompt pricing went negative. Cushing never reached maximum capacity. It’s the sharp rise that scares traders, and the potential to run out of capacity so soon.

My point is, you have some of the strongest production in the same region as the biggest drop in demand due to LNG feed gas. This same region contains the standard for US natgas pricing. Though much of that gas can be flowed to other storage facilities, it is getting dangerously close to a panic for South Central Storage. I don’t have as many details on oil and what was the biggest factor for CL pricing to go negative, but my paranoia displayed above should be reason enough to be extra cautious of at least the prompt contract. South Central storage is showing an even sharper rise as of the last few weeks, where it would normally be turning to flatten out for high summer demand. LNG is to blame, but the thought of no place to send natgas production in a matter of weeks is the reason for pricing being right were it is today.

I’ll remain in UNL, which is spread over 12 months of NG contracts. I refuse to get back into UNG until the threat of storage reaching max capacity subsides. I’m a big supporter of ETFs, and UNG. Right now I would recommend to anyone listening, be warned, UNG isn’t a safe bet in the chance that NGQ20 could go negative in the next couple weeks. Search some article about USO having to change how they invested their funds in different contracts and products to avoid total collapse of USO. I’m not saying UNG is going to share the same fate as USO, but the possibility is ever growing and hasn’t subsided yet. Manage the risk now and you’ll still be around to trade tomorrow.

Oldinvestor

of course I forgot to mention anything about LNG cancellations. I ran out of time and must fulfill my day job work duties. I’ve written some about this matter in previous posts.