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Where will Natural Gas Prices Go Now That Inventories Have Been Drawn Down

Where will Natural Gas Prices Go Now That Inventories Have Been Drawn Down

Mother Nature's been good to the North American natural gas sector.

Not only did she gift several massive shale gas plays over the last few years. She also delivered a frigid winter this year, helping draw down a mountain of gas inventory. Last fall, it looked like U.S. inventories were going to be a stiff headwind for prices.

With shale gas boosting American production for the first time in a decade, record amounts of gas were going into storage.

By mid-November 2009, stored gas reached an all-time record 3.84 trillion cubic feet. Well eclipsing the 2008 storage high of 3.5 Tcf.

By all appearances, there was more than enough gas to go round for the winter. Sellers were going to be forced to compete aggressively, driving down prices.

But an unusually cold winter changed that. (Having come near-frostbite on my last visit to Houston, I can personally attest to the frigid conditions in the U.S. the last few months.)

Draws from storage have been large and steady through December, January and February. In fact, February saw three weeks straight with weekly withdrawals above 8%. A lot of gas going down the pipe.

The result being that inventories are, incredibly, now lower than they were last year at this time. The U.S. is currently holding 1.63 Tcf in-ground. As compared to 1.65 Tcf in mid-March 2009.

This is great news for natural gas producers. No longer is there a mountain of stored supply hanging over the market. We'll see where prices go from here.

By. Dave Forest of Notela Resources




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