No need to worry about natural gas this winter, for we will have plenty–if not record breaking levels–in storage.
According to data provided by Bloomberg, by November 1st, the start of the new heating season, gas inventories could reach new highs. As explained by Bloomberg, “If injections for the rest of this year track 2014 levels, storage may come close to 4.3 trillion cubic feet, more than 300 billion cubic feet above earlier highs.” While this is great news for those who rely on natural for heat and electricity, the oversupply could impact drillers, who are already taking negative hits from low energy prices.
If injections for the rest of the year continue as predicted, natural gas prices will remain low for a period of time, “even as new sources of demand arise, including exports of liquefied natural gas that are slated to begin from the Gulf of Mexico,” said Bloomberg.
According to Senior Energy Analyst Jeff Moore of Bentek Energy, the U.S. is trending towards all-time natural gas storage highs. The U.S. Energy Information Administration’s (EIA) July 17th data, the most recent available, the nation’s storage inventories sat at 2.8 trillion cubic feet (Tcf), which is after a net increase of 61 billion cubic feet (Bcf) from the week before. When compared to last year, inventories are 622 Bcf higher and 81 BCF higher than the fiver year average, 2.7 Tcf.
As reported by the Pittsburgh Post-Gazette, “In the east, where the prolific Marcellus Shale has helped feed the country’s oversupply, the amount of natural gas in storage reached nearly 1.3 Tcf, which is actually below the five-year average of 63 Bcf.” Moore commented on the east’s natural gas supply:
The east region is an interesting region because that’s where the majority of the supply growth has occurred, and, currently, it’s the only region below the five-year average.
Moore also touched on this winter’s temperatures and the possible outcomes for the industry:
This past winter was very cold, especially in the Northeast, and we withdrew a lot of gas — down to near historic low levels … If we start this winter with record-high inventories, and we don’t have a cold winter, it won’t bring down supply, and it could look ugly for natural gas prices.
Natural gas prices have been low for quite some time, and Moody’s Investor Services says the national gas benchmark, Henry Hub, will reach $2.75 this year and only make it to $3 in 2016. While power plants that are coal-fired are in the process of switching to natural gas due to federal mandates and the cost of natural gas being cheaper than coal, power generation is extremely important.
“You have to keep a lid on natural gas prices to help it keep its share in the power market … Power burn] is making a pretty big dent in gas supply, but, again, a lot of that is price driven. You need to keep a lid on prices to keep that phenomenon afloat,” says Moore, “If prices rally to the $3.30 to $3.40 range, you would lose some of that demand.”
According to the Pittsburgh Post-Gazette, “Bentek expects gas prices to be under pressure for the next couple of years, unless there’s a larger than expected demand response, for instance from industrial demand, additional coal plant retirements or increased exports to Mexico.”
America’s Natural Gas Alliance’s Vice President of Research and Policy Analysis Erica Bowman believes that by the end of the summer, natural gas storage levels will be in line with the EIA’s predictions.