Natural gas update - prices and supply outlook

October 11, 2012
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Several factors are currently affecting natural gas supply and cost  (image courtesy website ipaa.org).
Several factors are currently affecting natural gas supply and cost (image courtesy website ipaa.org).
The most recent report released by the Energy Information Administration indicates that growth in natural gas production will continue, says 360 Energy's Lisa Brodeur. "Despite a record number of rigs being pulled off-line, production increases are about to catapult the industry to new levels of storage."

 
"The most recent report by the EIA shows production up by 2.6 billion ft3 per day across the US for 2012, bringing total production to 68.8 Bcf per day. 2013 figures are suggesting just a 0.4 bcf/day increase, but an increase nonetheless.

This is still staggering considering drilling rigs have dropped from 811 to 437 this year so far. The increase in production is due to greater returns from shale gas plays, namely Eagle Ford and the Marcellus. Secondly, oil drilling continues to rise, and the natural gas liquids that are produced in tandem with oil production, continue to spill onto the market.

Looking to the end of the storage injection season in the US, it appears we are going to set another record level for storage figures this year. The EIA’s most recent estimates are for storage figures to reach 3,903 Bcf, the highest figure we have ever seen. While not as high as originally expected due to significant coal to gas switching for electricity generation in the US, this is still a solid storage figure. This record storage figure comes amid an extremely hot summer and what could be the lowest amount of gas injected in a summer since 1987 (if we reach 3,903 it will be 1,426 Bcf).

Record storage levels last year led to rock bottom prices this spring, as we came out of an overly warm winter and little demand for the gas in storage. This winter, average temperatures are being predicted across much of the US, with only the East above normal, which should work towards keeping prices above $3.00US/MMBtu, with storage withdrawals coming closer to averages we have seen in the past.

However, another warm winter, with temperatures even half of what we saw last year, would send the market back under $3.00 in a hurry. Weather is going to be the primary driving factor for both natural gas production and consumption in the US over the next 12 months."

Lisa Brodeur is a Quality Assurance Supervisor at 360 Energy.

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