• 4 minutes Ten Years of Plunging Solar Prices
  • 7 minutes Hydrogen Capable Natural Gas Turbines
  • 10 minutes World looks on in horror as Trump flails over pandemic despite claims US leads way
  • 13 minutes Large gas belt discovered in China
  • 55 mins Yale University Epidemiologist Publishes Paper on Major Benefits of Hydroxchloroquine for High-risk Outpatients. Quacksalvers like Fauci should put lives ahead of Politics
  • 14 mins Would bashing China solve all the problems of the United States
  • 2 hours COVID 19 May Be Less Deadly Than Flu Study Finds
  • 5 hours Model 3 cheaper to buy than BMW 3 series.
  • 2 hours Can I Sue This Site for If People Post Inaccurate Information?
  • 12 hours China to Impose Dictatorship on Hong Kong
  • 9 hours Incompetent "Journalists"
  • 2 hours Thugs in Trumpistan
  • 3 hours Pompeo's Hong Kong
  • 1 day Iran's first oil tanker has arrived near Venezuela
  • 1 day Let’s Try This....
  • 1 day Chicago Threatens To Condemn - Possibly Demolish - Churches Defying Lockdown
  • 1 day HVDC Cheaper Than Low-carbon Natural Gas
  • 19 hours 60 mph electric mopeds
  • 1 day Oil and Gas After COVID-19
Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

More Info

Premium Content

Plunging Natural Gas Inventories Pull Prices Even Higher

Natural gas markets have experienced a dramatic change in just the past two months, upending forecasts about a protracted period of oversupply.

The EIA reported a major decline in natural gas inventories for the week ending on December 23, a drawdown of 237 billion cubic feet (Bcf), which takes storage levels in the U.S. down to 3,360 Bcf. That is 10 percent lower than year-ago levels at this time of the year, and also 2.3 percent lower than the five-year average. This is a remarkable turnaround in just a few weeks’ time.

Natural gas prices have been low for years amid a persistent state of oversupply. Gas production has increased inexorably for years, providing more than enough supply to meet demand. The mild winter last year plunged the market into a state of disorder. Excess gas was diverted into storage, taking inventories to record levels. As a result, natural gas prices cratered below $2/MMBtu and there was not a lot of hope that the market would adjust in the near-term.

But production began falling, having dipped 5 percent since February. That raised the prospect of inventories coming back down towards the five-year average, but many analysts still saw a huge buffer that could last through this current winter season.

Since October, however, gas inventories have begun to drawdown in dramatic fashion. The fact that inventories are now below the five-year average is an extraordinary development (the blue line in the chart below has dipped below the dark gray line, after staying above it since mid-2015). Related: Has The OPEC Rally Gone Too Far?

(Click to enlarge)

What does this mean? The U.S. is no longer overflowing with gas, which means the gas markets are no longer in a state of oversupply. It is no coincidence then that NYMEX gas contracts for February delivery have surged to $3.80/MMBtu, the highest price in more than two years. Those prices are also up by roughly half since October, a stunning price rally.

Moreover, there is plenty of room to run for natural gas prices. Production in September – the latest month for which monthly data is available – was still 4 percent lower than February 2016 levels. And demand has been very strong so far this winter with chilly temperatures and winter storms across the country. It is entirely conceivable that natural gas tops $4/MMBtu this winter, a level not seen since 2014.

In addition, with supply relatively inelastic in the short-term, inventories could continue to fall, dipping well below average levels. That tightness could send gas prices even higher.

Winners: Natural gas drillers, coal producers
Losers: Owners of gas-fired power plants, petrochemical and industrial customers that use gas as an input, consumers

(Click to enlarge)

By Charles Kennedy of Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • GregSS on December 30 2016 said:
    No mention of new NGL export facilities coming online sending gas out of the country? Seems like it would be an important item to address in an article about Natural Gas inventories falling.

Leave a comment




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