• 45 mins UK On Track To Approve Construction of “Mini” Nuclear Reactors
  • 5 hours LNG Glut To Continue Into 2020s, IEA Says
  • 7 hours Oil Nears $52 With Record OPEC Deal Compliance
  • 10 hours Saudi Aramco CEO Affirms IPO On Track For H2 2018
  • 12 hours Canadia Ltd. Returns To Sudan For First Time Since Oil Price Crash
  • 13 hours Syrian Rebel Group Takes Over Oil Field From IS
  • 3 days PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 3 days Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 3 days Syrian Rebels Relinquish Control Of Major Gas Field
  • 3 days Schlumberger Warns Of Moderating Investment In North America
  • 3 days Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 3 days Energy Regulators Look To Guard Grid From Cyberattacks
  • 3 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 3 days New Video Game Targets Oil Infrastructure
  • 4 days Shell Restarts Bonny Light Exports
  • 4 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 4 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 4 days British Utility Companies Brace For Major Reforms
  • 4 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 4 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 4 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 4 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 4 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 4 days Rosneft Signs $400M Deal With Kurdistan
  • 5 days Kinder Morgan Warns About Trans Mountain Delays
  • 5 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 5 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 5 days Russia, Saudis Team Up To Boost Fracking Tech
  • 5 days Conflicting News Spurs Doubt On Aramco IPO
  • 6 days Exxon Starts Production At New Refinery In Texas
  • 6 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 6 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 6 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 6 days China To Take 5% Of Rosneft’s Output In New Deal
  • 6 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 6 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 6 days VW Fails To Secure Critical Commodity For EVs
  • 6 days Enbridge Pipeline Expansion Finally Approved
  • 7 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 7 days OPEC Oil Deal Compliance Falls To 86%
Alt Text

The U.S. LNG Boom Could Be About To Stall

United States LNG has seen…

Alt Text

China Drives Natural Gas Demand Boom

China is poised to surpass…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

A Glut For Natural Gas Too?

A Glut For Natural Gas Too?

Oil is not the only energy source that is seeing a glut. Growing supplies of natural gas could soon result in a similar phenomenon.

It was only a year and a half ago that the United States, and the northeast in particular, saw supplies dwindle to exceptionally low levels, forcing prices to temporarily spike. The Northeast experienced a freezing winter, leading to high levels of consumption as millions of people tried to keep warm. Natural gas storage levels plummeted to lows not seen in years.

The severe drawdown in storage levels during that cold 2014 winter raised fears that the situation would be even worse the following year. With inventories depleted, another brutal cold could blow a huge hole in storage levels. Related: Busting The “Canadian Bakken” Myth

And while the northeast did have a rough winter in 2015, and consumption levels were just as high as the year before, something different happened this time around: US drillers produced a record level of natural gas in 2014, allowing inventories to quickly rebuild. After storage levels ran well below their five-year average (see chart), by the beginning of 2015, as production continued to rise, storage tanks filled up and overall inventories bounced back to the average.

(Click to enlarge)

That caused residential natural gas prices to crash back down to earth late last year and in the first few months of 2015, with no repeat of gas price spikes that were seen in 2014.

As inventories rise, prices fall. While that is good for consumers, shale gas drillers are beginning to worry. As production piles up and inventory levels were rapidly repaired, what happens next? Further inventory builds could turn the adequate supplies into a glut. By November, storage levels could surpass 4 trillion cubic feet, a record high, according to energy analysts.

Henry Hub prices are now half of what they were a year ago, selling at around $2.80 per million Btu (MMBtu). Related: Time To Move Capital Into Next Bull Market – Part I

Can prices fall any further? Henry Hub prices actually dipped below $2/MMBtu back in 2012, but after several years of incremental increases, prices are now at their lowest levels since then.

If production continues to rise, excess supplies will crash prices. With storage levels continuing to build, the brewing glut is starting to raise fears that such a bust in prices could be coming soon.

However, new data from the EIA suggests that the low prices are starting to kill off the boom (or at least, level it off). Natural gas production across the most prolific shale basins is expected to fall in July by 221 million cubic feet per day, led by a sharp decline in the Eagle Ford.

As in the oil markets, where traders are watching for signs that production declines will lead to price increase, any decline in natural gas production could prevent prices from falling much below where they are now.

On the demand side, the glut could be temporary. The US sources around two-fifths of its electricity from coal, but that share is declining. Cheap gas and an environmental crack down on coal is pushing power plants around the country to switch over to natural gas. With a lot of gas-fired power plants under construction, demand is expected to significantly rise in the coming years. Dozens of gigawatts of new power plants burning gas will erase the gas glut.

Also, the US is set to begin exporting natural gas abroad. The first major LNG export terminal on the Gulf Coast is expected to be completed by the end of the year. More natural gas shipped abroad will reduce supplies and raise prices. Related: Midweek Sector Update: G7 Plans To End Fossil Fuel Era This Century

Natural gas markets are at a pivotal point. Both production and consumption are at record levels, and could continue to rise. But in the short-term, with a lot of projects still under construction, excess supplies could persist.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • John Tucker on June 10 2015 said:
    Its not widely known that nitrogen fertilizer is almost always manufactured using natural gas as feedstock and almost 33% of North American production is used for this purpose ... and while the process of super-cooling gas for export overseas is very costly and inefficient, manufacturing fertilizer and then shipping that overseas is easy and highly profitable ... keep a close eye on the recent spate of new fertilizer plants being built in the US ...

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News