Slide 16 of 17
The recent surge in spot prices at the Henry Hub are well above a typical range for 1998-1999 (in this context, defined as the average, +/- 2 standard deviations). Past price surges have been of short duration. The possibility of a downward price adjustment before the end of next winter is a source of considerable risk for storage operators who acquire gas at recent elevated prices.
Several factors have come together recently that have pushed spot gas prices up sharply and which are expected to reverse the downward trend in in real gas prices for the next year or so:
U.S. gas production has been relatively flat.
Expected demand is high under normal weather assumptions.
Gas storage levels are below normal.
Alternative fuel (oil) markets are tight.
Natural gas prices in New York, and especially California, have been much higher than the Henry Hub spot price. The reasons for this range from constraints on effective pipeline capacity to increased demand as a result of cold weather.