Around many computer terminals located in major energy hubs sit hunched some very wealthy people that got that way by betting on the weather. Nothing so mundane as slapping down a hundred bucks on whether it will rain next Tuesday or not; they do it by betting on natural gas markets, which have the capacity to, within days, whipsaw positions into massive fortunes. Or losses, because the reverse is also true, as legendary gas trading firm Amaranth Advisors showed so spectacularly 20 years ago when it lost $6 billion by betting on the strength of the hurricane season. When Mother Nature failed to pummel enough coastal towns in that fateful fall, the highly leveraged bets cost the firm two-thirds of its capital. The legend of Amaranth lives on around the world as countless parents tuck their children in at night, where before planting a soft goodnight kiss on the forehead lean in and whisper, “Never trade natural gas, little one.”
Natural gas occupies a special place in our world that few truly grasp the significance of. While oil gets the headlines, natural gas is the silent workhorse, keeping industry industrializing, and buildings from freezing. No one notices it much until doomsday draws near, as in, a cold snap reaching down to Louisiana and even the Gulf of (I’m Not Going There). Then, people all of a sudden become very curious.
Most times, it is a quiet industry, not making headlines or causing a flap one way or another (it is oddly fascinating that people are becoming more interested in LNG as that product enters the conversation more;; the fascinating part is that a surprising number of people think it is something distinct from the natural gas market. Sigh.)
So what draws in the gas traders, those who blaze off into this Wild West shouting “It’ll never happen to me”? Go to any high school in North America and you’ll not find a single kid asking guidance counsellors how to get into the business.
No, they realize that later, once they realize the vast profit potential available at nearly all times from trading one of the world’s most volatile commodities.
Why is natural gas like that? Why does a boring fuel (boring unless it ignites without invitation) that flows silently in pipes under our feet (and now onto boats) form the backbone of one of the most volatile trading markets?
The answer lies in the way the market operates, and has to operate, unless and until someone builds a lot more gas storage.
Natural gas markets are kind of unique, and it helps to think of them in terms of inventory systems. Here is a comparison that is similar, not exact, but similar, as a way to look at it. And then afterwards, an analysis of the differences will make everything clear.
Back in the day when Japan was considered North America’s economic threat of a lifetime, clever Japanese companies began mopping the competitive floor by developing new management techniques that enhanced profitability. One of them was inventory management. It dawned on these businesses that systems that included large inventories introduced cost inefficiencies that need not necessarily exist.
“Just-in-time” or JIT inventory systems became popular several decades ago because they allowed manufacturers to save time and money. Under JIT, inventories are kept to a minimum, brought to the factory as needed. This reduces storage costs, inventory holding costs, insurance costs, and lowers waste. When it works, it works well; Toyota was a pioneer of the system and is a model manufacturing corporation. As a fine definition on Investopedia puts it, “The success of the JIT production process relies on steady production, high-quality workmanship, no machine breakdowns, and reliable suppliers.” Toyota relentlessly honed those factors into the behemoth it is today.
Consider the four key characteristics of a successful JIT process listed above: steady production, high-quality workmanship, no machine breakdowns, and reliable suppliers. All are critically important, without any one of them the system ceases to function. The Investopedia piece gives a great example of one such a meltdown, and the repercussions: “Toyota’s JIT inventory system nearly caused the company to come to a halt in February 1997, after a fire at Japanese-owned automotive parts supplier Aisin decimated its capacity to produce P-valves for Toyota’s vehicles. Because Aisin is the sole supplier of this part, its weeks-long shutdown caused Toyota to halt production for several days. This caused a ripple effect, where other Toyota parts suppliers likewise had to temporarily shut down because the automaker had no need for their parts during that time period. Consequently, this fire cost Toyota 160 billion yen in revenue.”
That supplier issue was a big deal for Toyota, and had a measurable financial impact.
This is where natural gas becomes different. The natural gas delivery system gets gas to your home exactly as needed, faithfully, but it has to work around obstacles that would otherwise cripple a JIT inventory system. You don’t even want to think about the impact of a malfunction if there is only one supplier, at a demand peak (typically a winter cold snap). Homes and hospitals go without heat. Pipes freeze and rupture causing weeks or months of chaos. People die.
At this point, I can hear people shouting from here: Hey idiot, JIT systems have no inventory, but natural gas does, it’s called natural gas storage. And those people are right – to an extent. And the extent is what makes natural gas so interesting, and volatile. But before digging into the storage aspect, look at the unique characteristics of the natural gas distribution system.
Natural gas as a system is different in the reliability of the four key success factors. With the NA natural gas system, there are many suppliers, there is a robust network of pipes, and there is large geographical disbursement of production so that even a catastrophic weather event in one region – say, large scale production freeze-offs – can be largely offset by production from other regions, or withdrawals from storage.
Gas storage does act as a buffer that adds a lot to system stability. The problem is, natural gas storage development has not kept up with natural gas production and consumption. Not even close.
It is easy to spot the emergence of this problem. The US energy data powerhouse Energy Information Agency, a go-to source for a whole world of data, has a table listing “U.S. Total Natural Gas Underground Storage Capacity” that traces historical trends, but their labelling shows just how little attention was paid to gas storage. The first row of data, the first time database record, is simply labeled “1980’s”. The whole table is so defined, 1980’s, 1990’s, etc. That’s how little attention was paid to natural gas storage.
Anyway, in “the 1980’s” natural gas storage was about 8.1 TCF (this number is far higher than the currently used value of about 4.4 TCF, because the ancient definition included categories such as “Aquifer storage fields” and whatever else was considered storage back then; today’s widely recognized benchmark is functional working gas storage available. What matters is the rate of change of capacity, so read on.). By the 2020’s, that number had grown to 9.3 TCF, or 15 percent growth, over a span of 40 years.
In that same time span, US natural gas production grew from about 17 TCF per year to the current rate of about 40 TCF per year – almost two and a half times 1980’s level. Consumption has gone up similarly (not surprisingly in line with production).
Because of these two different trajectories, the natural gas system is becoming more and more like a JIT inventory system. Recall that such systems work if there is steadiness in the system. Which is a problem because natural gas markets don’t do steadiness. The variability is off the charts. One week, traders have written off winter and prices plummet. Example: Henry Hub on Dec 30, 2025 – $4.40/mmbtu. Henry Hub on Jan 5, 2026 – $2.82/mmbtu, a drop of 36 percent. In a week. The equivalent in oil prices would be a drop from $60 to $38/bbl in the same time frame. The world would lose its mind. In the natural gas world, it’s a change of weather forecast. Three weeks after that plummet, US natural gas prices are at astronomical peaks seen once or twice in history (in the last huge US winter blast, storm Uri in 2021, natural gas prices in some localized markets soared to $999/mmbtu, and over the subsequent months shrank from that peak by about 99.7 percent)
For every molecule of gas that gets added to the system via demand the global the US gas system becomes more and more like a JIT inventory system but without the stability of flat demand. In this current brutal cold snap, projections made a month ago for the week coming up had maybe 120 BCF of gas withdrawals, based on the observation that “winter is pretty much over”. In this cold snap, with massive consumption and shutoffs, we could see nearly 400 BCF withdrawn in a single week, or more than 10 percent of the gas in storage at the start of winter.
If Toyota’s JIT system goes awry, the company loses some money and has a bad quarterly earnings report. If the NA natural gas quasi-JIT system goes awry…the consequences would be unthinkable.
(In Canada, the problem is exacerbated by limited pipeline egress. We fortunately have plentiful supply, and are used to extreme weather events. But the Canadian gas system is likely more prone to dramatic natural gas price collapses due to periodic bloating, with inadequate bleed off options. It is a massive problem and is driving away business, but you’ll have to speak to your local interprovincial gas handling monopoly about that.)
This isn’t a critique of the gas system; it almost defies belief how capable it is of meeting extreme weather events. It is a network effect that makes this happen and what makes natural gas impossible to replace with any known technology. This vast natural gas system is a lattice of hundreds of thousands of miles of pipe, hundreds of thousands of wells, and a networked colossal array of compressor stations and processing plants that keep the lights on and the pipes from freezing.
Critics relish pointing out that the system can become strained due to cold temperatures and freeze offs which can hit inhibit production at the worst time. It does happen, and we are seeing it now. But those outages are relative rarities, and are not necessarily an inevitability. Equipment can be upgraded to prepare for cold weather, Canada reliably produces gas in some of the coldest temperatures imaginable in there in Alberta and British Columbia. Blaming the system for partial-failures in some parts of the greater system during extreme cold weather is like blaming the human body because its owner did not put on a coat before going out into -30 weather.
Trying to explain gas storage to the general masses a hilariously futile task, because it is a nuanced topic, and the general masses prefer Marvel movies to nuance. But nevertheless, frozen pipes and no heat in sub-zero temperatures do have the capacity to grab one’s attention.
As North American natural gas demand continues to rise, and storage stays at similar levels, think of NA natural gas markets as a burgeoning JIT system almost designed to explode in price volatility. Which is why natural gas producers always appear to be shell-shocked. They are.
Despite widespread disinterest, people really should think more about the substance and the system that prevents tens of millions from freezing to death when weather gets bad. We should tell them more about it.
But we also need more gas storage facility construction. It is not easy developing functional gas storage projects, believe me, but it really needs to happen. With increased demand from new LNG export terminals and AI/data centre consumption, the risk of a very bad incident in extreme weather will only continue to grow.
So when you are tucking in those wee ones, don’t just scare them by pointing out that they could one day lose $6 billion by trading gas. Tell them it is not a bad idea to go into the field of natural gas storage. They could be tomorrow’s heroes. And it will put them instantly to sleep.
OK, so you missed the present-giving season. Go shopping anyway. At the peak of the energy wars, The End of Fossil Fuel Insanity challenged the narrative, facing into the storm. And now everyone is coming around to this realization as well. Read the energy story for those that don’t live in the energy world, but want to find out. And laugh. Available at Amazon.ca, Indigo.ca, or Amazon.com.
Email Terry here. (His personal energy site, Public Energy Number One, is on hiatus until there are more hours in the day.)