US Natural Gas Stockpile Within Reach of All-Time High

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Natural gas for December delivery fell to a new 52-week low of $2.19 early Friday as traders come to grips with a warmer start to the traditional heating season and a near-record amount of natural gas in the nation’s stockpiles.

As of last Friday, U.S. stockpiles totaled 3.877 trillion cubic feet, just 52 billion cubic feet below the all-time high at the traditional October 31 end of the storage injection season. If the week ending Friday ends with the same injection amount as the prior week (63 billion cubic feet), a new record will be set.

Dry gas production in the lower 48 states has averaged about 73.5 billion cubic feet per day this summer, according to a report from RBN Energy. That’s about 3.1 billion cubic feet per day more than a year ago, but still better than the 5 billion cubic feet per day production increase posted in January 2015. What caused the slowdown? According to RBN Energy:

But output flattened through the first half of summer as low prices prompted producers to scale back drilling activity and curtail well completions while they waited for drilling service cost reductions and additional takeaway capacity out of the Marcellus/Utica region.

On the demand side, natural gas demand from industrial plants and commercial/residential customers has fallen by a combined 600 million cubic feet per day. Yet, demand from electric power plants has risen by 3.7 billion cubic feet per day. There are, however, a couple of additional wrinkles.

First, the amount of gas injections this past summer averaged about 1 billion cubic feet per day below last summer’s injections, lowering the total injection this summer by almost 219 billion cubic feet. Second, the 2015 summer injection season began with 600 billion cubic feet more in storage than at the beginning of 2014 injections.

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What does this mean for producers? The Henry Hub futures contract for November closed on October 28 at $2.033 per million BTUs (1 million BTUs is approximately equal to 1 thousand cubic feet). That’s the lowest November settlement price in 17 years, according to RBN Energy.

And going forward? The January futures contract was priced at more than $3.40 per million BTUs in May and has dropped to around $2.50 recently.