Leo Haviland provides clients with original, provocative, cutting-edge fundamental supply/demand and technical research on major financial marketplaces and trends. He also offers independent consulting and risk management advice.

Haviland’s expertise is macro. He focuses on the intertwining of equity, debt, currency, and commodity arenas, including the political players, regulatory approaches, social factors, and rhetoric that affect them. In a changing and dynamic global economy, Haviland’s mission remains constant – to give timely, value-added marketplace insights and foresights.

Leo Haviland has three decades of experience in the Wall Street trading environment. He has worked for Goldman Sachs, Sempra Energy Trading, and other institutions. In his research and sales career in stock, interest rate, foreign exchange, and commodity battlefields, he has dealt with numerous and diverse financial institutions and individuals. Haviland is a graduate of the University of Chicago (Phi Beta Kappa) and the Cornell Law School.


Subscribe to Leo Haviland’s BLOG to receive updates and new marketplace essays.

RSS View Leo Haviland's LinkedIn profile View Leo Haviland’s profile


When United States natural gas 2014 build season ends this autumn, assuming normal weather and moderate US economic growth, working gas inventories in the key Producing Region probably will be between 1030bcf/1056bcf and 1170bcf. Suppose US gas output over the next several months significantly exceeds the Energy Information Administration’s May 2014 forecast (as some natural gas clairvoyants claim it will). Then inventories may ascend from the EIA’s current estimate of over 1020bcf to around 1170bcf. Based upon historic inventory patterns, especially those of 2006 to the present, most marketplace participants probably view around 1173bcf as average Producing Region inventory for the end of build season. Historical analysis indicates that a move to around 1232bcf, though unlikely, should not be discounted. In any event, the Producing Region probably will not face containment problems this year.

The NYMEX natural gas marketplace during the course of build season probably will remain in a sideways trend, with the range being 3.80/4.00 to 5.00/5.20 (nearest futures continuation). The spring 2013 top (5/1/13 at 4.444) represents a midpoint to monitor. Despite the bearish price drop since late February 2014, the current Producing Region and overall US inventory picture for the balance of build season still appears quite bullish. What happens if as build season marches onward, actual overall US inventories look unable to increase significantly relative to the EIA’s May 2014 prediction for end build season 2014? Then a breakout above 5.00/5.20 resistance is probable. Suppose Producing Region inventory looked headed toward around 1230bcf, and that a comparable large percentage inventory gain also appeared likely in the Eastern and Western regions. Then a price move toward 3.40 may occur.
Read the rest of this entry »

FOLLOW THE LINK BELOW to download this article as a PDF file.
US Natural Gas Inventory Building- the Producing Region Picture (5-18-14)
Charts- NYMEX natural gas and coal (5-18-14, for essay US Natural Gas Inventory Building- the Producing Region Picture)


United States natural gas inventories in the key Producing Region at end winter draw season 2011-12 broke records for that time of year. At their low point on 3/9/12, Producing Region working gas inventory of 965bcf soared about 40.5 percent beyond winter 2010-11’s 687bcf and winter 2008-09’s 690bcf. The new record plateau for the end of draw season blasts 123.9 percent above the end draw season average (1994-2011). Producing Region inventories remain sky- high. On 4/20/12 they were 1041bcf. These jump 31.9 percent above last year’s level at this time (789bcf; 4/20/11). When 2012 natural gas build season ends this autumn, stockpiles probably will be lofty relative to long run history.

It is a truism that much can (and will) happen in the natural gas supply/demand battlefield and related theaters between now and the close of 2012 build season. Assume normal summer weather and continued modest American economic growth. Many marketplace generals declare that brimming inventories definitely or almost certainly will cause the Producing Region (“PR”) to suffer notable containment (“overflow”, “overcapacity”) problems this fall. Not only gas and power trading insiders, but also numerous Main Street spectators and assorted political guardians, fervently speak of the explosive gas production increase of the past few years. Because end winter 2011-12 PR gas inventory already stood high in arithmetic (bcf) terms, PR stockpile increases at around the average historical rate (1994-2011 era) during 2012 gas build season will stretch capacity in this key territory.

The PR indeed faces significant containment risks. By end build season 2012, these risks may burst into actual physical problems for much of the region. However, an alternative scenario is more likely. For the PR area as a whole, although the containment challenge probably will be a very close call, the region probably will scrape by. In any event, and as of now, an excessive inventory relative to available storage situation throughout the PR is significantly less certain than many proclaim.

Why question the widespread faith that the PR containment problem will be severe and widespread? Gas demand is rising. Substantial fuel switching from coal to natural gas has occurred and likely will continue. Despite the recent shale gas boom, as well as gas production associated with crude oil output in some locations, US natural gas production growth (overall output) may be less than sentinels forecast. Not only are prices still depressed. The US gas rig count has retreated dramatically.

A crucial consideration for the containment debate in the PR (and elsewhere) is the amount of gas storage available around the time of build season inventory peak. Admittedly, any current viewpoint on US gas storage capacity for the end of build season 2012 is quite conjectural. Nevertheless, relative to the most recent Energy Information Agency (“EIA”) estimates of demonstrated peak working gas storage capacity, sufficient storage in the PR probably has been and will be created to avoid a significant containment problem this autumn.

To assess the likelihood of severe containment problems throughout the Producing Region (and related natural gas price implications), the crucial issue therefore is how much natural gas storage probably has been and will be constructed (developed) since April 2011 (the most current EIA overview).

Despite some seasonal tendency for prices to finish a bear move (or end an important stage in a downtrend) in late summer or autumn, it does not follow that prices drop off a cliff from the preceding end winter (or early spring) without an interim rally. The price could make a low, rise for a few months, and then drop to make a bottom in (for example) late August or calendar September.

FOLLOW THE LINK BELOW to download this market essay as a PDF file.
Natural Gas Inventory- the Producing Region Story (5-1-12)