Monday, July 23, 2012

$8 Natural Gas by Winter?

From Forbes:
There is a glut of natural gas. Everybody knows that. There’s so much of the latest multi stage hydraulic fracturing going on from New York State to Texas and all places in between, prices will be low forever. But just as a full watering hole can deplete quickly the current gas storage glut can recede. If fact it already has been and at an alarmingly brisk pace and there may be a confluence of other events which could hasten the process. Consider this. The weekly EIA natural gas storage numbers reported each Thursday came in with a 28 billion cubic feet (bcf) injection. The inventory increase last year at this time was 67 bcf while the five year average accretion was 74 bcf. So true that one week does not a trend make. But this makes eleven straight weeks that have experienced below average storage injections. After Thursday’s numbers were released inventories stood at 3.163 Trillion Cubic Feet or 19.2% above last year but only 17.5% above the five year average. A seemingly decent cushion until you consider as recently as May 10 stockpiles were 48.4% and 49.9% ahead of the previous year and the five year averages respectively. So the question becomes, why are rates of gas injection dropping so precipitously unless the shale plays are actually unable to produce the necessary incremental volumes.
A Little History And Some Facts
Natural Gas production in the US was declining steadily until 2005 into what many perceived as an irreversible trend with an implication of persistent shortages. Enter the knight in shining armor; horizontal resource drilling. Daily gas production increased from 51 bcfd in 2005 to an average of 66.2 bcfd (billion cubic feet per day) in 2011. Some months have even spiked above 70 bcfd.  The natural gas rig count peaked at 1,600 in the summer of 2008. No coincidence gas prices topped out concurrently the first few days in July at $13.28 per mcf. So in six plus years while gas drillers were able to increase daily supply by 30% demand has increased only half that amount. The result has been a spot gas price that bottomed on April 17, 2012 at $1.89 per mcf (thousand cubic feet). But the pendulum is now trending in the other direction as power suppliers and the transportation industry begin to capitalize on the low price of natural gas.
Read the rest of the article here.

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