US Natural Gas Price in Midle January 2012
Natural gas prices in US have sunk to the lowest point in a decade as the shale drilling boom threatens to fill the nation’s underground storage network. Nymex February gas was $2.402 per m British thermal units early Thursday, down almost 50 per cent from a year ago to return to levels last reached in early 2002.
The decline marks a stunning turnround for a market that was building sea terminals to handle an anticipated flotilla of imports just a few years ago. Drillers’ use of horizontal drilling and hydraulic fracturing techniques has instead added decades to estimated reserves, allowing the US to ponder significant liquefied gas exports.
Analysts say that with production at records and mild winter temperatures leaving inventories swollen, prices could approach $1 per m Btu later this year. At some pipeline hubs near production centres, gas sells for discounts of as much as 30 cents below prices at Henry Hub, the Nymex delivery point in Louisiana.
Weak household demand for heating has raised the prospect that underground storage facilities will bulge with record stocks of more than 2tn cubic feet by the end of winter. Bentek Energy, a market analysis group, last week warned that some swollen storage facilities may soon be forced to let out gas to maintain operational integrity, causing “extreme downward pressure on prices in March.”
Even a hot summer, which would force electric power plants to burn more gas, may not keep inventories from straining proved storage capacity of 4.1tn cu ft after the summer gas “injection season” ends in the autumn.
“We are starting the new gas year with an incredible glut,” Bank of America Merrill Lynch Global Research said.
Drillers have endured low prices, pushing output above 60bn cu ft per day, because many gas wells also pump higher-value liquids and petroleum. “It’s like a guy mining for silver and he keeps running into gold,” said Vikas Dwivedi, energy analyst at Macquarie.
While the number of gas drilling rigs has recently declined, the pullback could take months to affect supply. Wells that have been drilled but not completed are also ready to be tapped if demand rebounds.
“We project that there will be very little supply response to a period of $2 (or lower) gas prices in 2012,” Barclays Capital said, “meaning there is no short-term floor to prices.”
US gas now costs just a third of prices in European markets and a sixth of gas sold in Japan, where it’s $15 per mBtu. An analysis unit of the US Department of Energy is on Thursday expected to release a study on the impacts of exporting liquefied natural gas to higher-priced markets.