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Larger Than Expected Natural Gas Inventories Spells Trouble for Producers

In a surprising turn of events, rising supplies of oil and tepid global demand have caused prices to crash to their lowest levels in years.

And the same phenomenon may be playing out for natural gas, at least in the United States. An increase in supply and soft summer demand are combining to see rapid build ups in storage inventory, according to new data from the Energy Information Administration.

But let’s back up a minute.

The unusually cold winter of 2014 saw a record-breaking drawdown in natural gas inventories as power plants ramped up to supply enough heating, particularly on the east coast. That led to natural gas storage in the U.S. to drop to an eleven-year low, and prices temporarily spiked in response to high demand.

As the east coast thawed out, demand fell back to their usual levels, but many analysts predicted that the effects of the brutally cold winter would reverberate in the months and even years to come.

The problem comes down to whether or not production would exceed consumption to such a degree that inventories would rebuild. Normally, inventories are built between April and November, as demand is low enough to allow excess natural gas volume to be syphoned into storage. Then, with the onset of winter, inventories are drawn upon, depleting until the spring.

But many feared that the unusually cold winter of 2014 would mean that natural gas inventories were so depleted that the U.S. would struggle to refill…

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