Natgas may hit US storage max & lower prices

31 May 2006 17:54  [Source: ICIS news]

WASHINGTON (ICIS news)--US storage of natural gas may hit maximum capacity of 3.5trn cubic feet (tcf) later this year, forcing production shut-ins and price reductions, gas industry officials said on Wednesday.

 

The Natural Gas Supply Association said a milder summer forecast and a resulting marginal reduction in home-cooling gas demand likely will result in a record high level of gas storage just prior to the onset of the winter heating season in November.

 

Association chairman Chris Conway said maximum US gas storage capacity technically is 4 tcf but the effective maximum capacity for working gas is 3.5 tcf. That storage capacity might well be filled by the end of September, he said.

 

As of 19 May, US gas in private storage nationwide was 2.16 tcf, nearly 30% ahead of the same period last year and fully 50% ahead of the five-year average. Summer weather is forecast to be warmer than average but cooler than last year and gas injections to storage are expected to continue at an average 60bn cubic feet (bcf) per week through the summer.

 

“If we get at or near full storage capacity,” Conway said, “there will be an impact on production.” 

 

“Gas producers,” he noted, “have to send the gas somewhere, so if storage capacity is reached and there’s no place for the gas to flow to, something has to shut in.”

 

If the domestic gas market experiences maximum storage capacity and production shut-ins, he said the market impact would be downward pressure on natgas prices later this year.

 

Conway declined to say how much downward pressure there might be in terms of cost per million Btu. Citing federal antitrust restrictions, he also declined to forecast a natural gas price range for the third quarter or later this year.

 

Conway said, however, that publicly reported figures suggest flat pricing pressure for the near-term North American summer months because a slight decrease in summer cooling demand will be offset by a moderate recovery in industrial demand.

 

Natgas prices hit a high near $14/m Btu in December last year in the wake of hurricane damage to US Gulf Coast production platforms and pipelines. More recently, gas prices have moderated to at or just above $6/m Btu at the Henry Hub but they are still substantially higher than the historic $2/m Btu price range that prevailed prior to 1999.

By: Joe Kamalick
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