While geopolitical risk definitely remains…
Oil discoveries hit a record…
Natural gas prices are at a 10 year low in North America and are only predicted to fall further as production continues at record levels. In fact so much natural gas is being produced that soon all of America’s reserves will be full and there will be nowhere left to put the surplus.
Consumers have been benefitting from the low prices, but the gas companies have been suffering badly; victims of their own success. Profits are low due to the low sale prices, and stock prices are dropping as production is scaled back and profits are predicted to fall even more.
Jen Snyder, of the research firm Wood Mackenzie, said that, “They’ve gotten way ahead of themselves, and winter got way ahead of them too. There hasn’t been enough demand to use up all the supply being pushed into the market.”
After winter there is usually about 1.5 trillion cubic feet of natural gas stored in America’s reserves, but after the incredibly warm just gone, far less gas was used than normal. Over half of the homes in America are heated with natural gas, so without the demand the reserves just continued to build up. There is approximately 2.5 trillion cubic feet in storage. This is far more than normal; the underground salt caverns, depleted oil wells, and aquifers that are used to store natural gas are filling up rapidly.
It has been predicted that the stores could be full to capacity by autumn, which would mean a huge excess in demand with nowhere to go. Prices would dive, and Anthony Yuen, an analyst from Citigroup predicted that the price could fall to below $1 per 1,000 cubic feet.
To reduce the supply of natural gas many companies are reigning back on their production, and instead looking to drill for oil where profits are far higher. However this tactic doesn’t work perfectly due to the fact that natural gas is nearly always a natural by-product of drilling for oil. One of the most effective methods for reducing the supply of natural gas to the market is by capping of wells completely, but this is expensive and not always an option for the company.
By. James Burgess of Oilprice.com
James Burgess studied Business Management at the University of Nottingham. He has worked in property development, chartered surveying, marketing, law, and accounts. He has also…