Underground natural gas storage is at a record level and is poised to stay that way throughout the remainder of 2012. The glut of natural gas stems partly from the energy industry’s success with new and more efficient drilling techniques that has allowed production to skyrocket in areas known as shale formations. While production has been increasing, demand for natural gas has not been able to keep up, forcing producers to put their natural gas into storage.
The mild winter across the country has added to the supply/demand imbalance. During the winter season, natural gas is withdrawn from storage to meet heating demand needs. However, with winter temperatures averaging above normal, the level of withdrawls have been much lower than average. Current storage levels are 20% above both last year’s average and the 5-year average.
Record high storage levels are expected to last throughout the year unless the U.S. experiences a very hot summer or producers cut back dramatically on production.
However, current summer forecasts are predicting normal summer temperatures which create the possibility that physical storage capacity could be exceeded by October 2012. If a level is reached where there are storage capacity constraints then producers could be forced to curtail production until some of the natural gas is in storage is used up.
In order to try and limit storage levels and create more demand for natural gas in the electric sector, gas prices have plummeted to $2.50 mmbtu. Prices need to go low enough so that electricity generation produced by coal fired power plants is replaced by the lower priced natural gas fired power plants.
Historic low natural gas prices are translating into historic low power prices in several regions for the remainder of 2012. Customers who would like to discuss a strategy to take advantage of these low prices should contact their Business Development Manager.