Something quite interesting is taking place in the U.S. natural gas market this year. As frigid temperatures blanketed the entire East Coast this winter, record natural gas demand has resulted in multi-year lows in gas storage levels.
The EIA came out with their Natural Gas Storage Report today showing a stunning 34% lower gas storage level compared to the same time last year.
If you look at the light blue line (2014 storage trend), you will notice that current gas storage level is already below the lowest level reached at the end of March, 2013. The dark blue dashed-line is my estimation of where the storage level will be by the end of March this year.
Furthermore, the lowest 5- year range of gas storage has never fallen below 1,600 billion cubic feet. The data from the EIA Natural Gas Storage table shows that we have already reached this extreme low point.
Last year’s Feb. 7th storage level was 2,549 Bcf (billion cubic feet), whereas this year the amount is 863 Bcf lower at 1,686 Bcf. This is very disconcerting because the market will continue to draw gas supplies from underground storage until the end of March (based on 5-year trends).
Energy analyst Bill Powers (who I interviewed in January) believes we could see a gas storage level at 1,200 Bcf by the end of this month. If the cold weather pattern plaguing the North East continues for the rest of the winter, we could see the U.S. gas storage level reach 800 Bcf by the end of March.
If the natural gas storage level falls this low, it will put severe strain on the U.S. natural gas market going into the spring and summer (the time when the industry begins to rebuild the underground storage supplies). Already traders are pushing the price of natural gas well above the $5 level:
UPDATE: The price of Natural Gas closed up $0.40 (8.3%) at $5.22 today and is currently up $0.07 (1.3%) at $5.29 in the foreign markets.
Bill Powers (last year) forecasted that prices of natural gas would reach $5-$7 with much higher spikes in the next few years. We have already reached $5 level and will more than likely see much higher natural gas prices as the record draw-down of underground gas storage continues.
Another factor that could result in much higher natural gas price spikes is the inability for the industry to maintain current shale gas production. As I mentioned in my earlier article, 2014: The Year The Shale Gas Bubble Bursts & The Boom For Precious Metals?, the annual U.S. natural gas decline rate is a staggering 24%.
Thus, the industry has to replace nearly 100% of its production in 4 years to keep production flat — much less growing. This is a whole lot of gas folks.
I will provide more details of the U.S. and world energy situation in my upcoming U.S. & GLOBAL COLLAPSE REPORT out later this month.
I recommend Bill Powers book, Exploding The Natural Gas Myth: COLD, HUNGRY AND IN THE DARK. You can also follow him at his twitter address below:
Big Spikes In the Precious Metals Coming In 2014?
As the price of natural gas topped above $5 today, Gold finally surpassed the psychological $1,300 level. This is quite interesting as the largest gold producer on the planet, Barrick just released its Q4 2013 results showing “All-in costs” for mining gold at $1,317 an ounce.
As record demand for the yellow metal continues in 2014, the current price of gold is still below the total cost of production from one of the largest gold miners in the world.
The problem now plaguing the mining and energy industry is the huge increase in capital expenditures as prices remain flat (oil) or decline (gold).
For example, Goldcorp produced 2.6 million oz of gold in 2013, but stated an estimated negative $1.3 billion in Free Cash Flow. Free cash flow is different from cash flow. To get Free Cash flow, you deduct capital expenditures and dividends from the operation cash flow.
What this means is that Goldcorp is spending more on Capex and dividends than it is making by its operations. Goldcorp isn’t the only gold producer suffering from negative free cash flow, many of the top gold miners are as well.
For example (according to Y-charts.com), Barrick stated a negative $913 million in free cash flow for the first nine months of 2013. I would imagine this figure will increase as the results from the fourth quarter are included.
So the here’s the question… how can the top gold miners report $1,100-$1,300 All-in costs, when their free cash flow is negative? Of course some of the capital expenditures are for new projects, but many of these new mining projects will add production just to offset declines or planned shut-downs from older mines.
2014 may indeed be the pivotal year for the financial markets. There are so many negative factors going forward, I believe the broader stock & bond markets will finally succumb to the weight of the Hundred Trillion Dollar Derivative Monster.
David Stockman, Former Director of the U.S. Office Management & Budget spoke about the huge derivative bubble in a recent interview with King World News. He believes Fed Chairman Janet Yellen and the Keynesians at the Fed are playing with “Fire” with their insane monetary policy.
Eric King asked David Stockman’s opinion about the Fed’s massive trading room:
That (Fed) trading room is a weapon of financial mass destruction. That is the point that people need to understand. The people running the Fed today have no clue of the danger that they are creating with this massive market manipulation and intervention.
The market isn’t trading on fundamentals whatsoever.
…… you know, the Gold Market could explode at any moment.
Stockman really sums up the entire financial situation in those few sentences. If you haven’t listened to the interview, I highly recommend it.
As the U.S. and world move closer towards financial collapse, the volatility in the markets will continue to increase. With the price of gold and silver still near their cost of production, I believe the volatility will impact the precious metals in a positive way, whereas the broader stock markets will suffer the opposite reaction.
2014 may well be the year that the price of natural gas, gold and silver all spike together.
I will be providing updates on Silver & Gold Eagle sales at the U.S. Mint, break-even analysis of the top 12 primary silver miners and energy data in the upcoming weeks. Please check back at the SRSrocco Report for new posts and articles.
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