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Natural gas storage levels within 7% of five year average

Hydrocarbon Engineering,

According to the US Energy Information Administration (EIA), working natural gas in storage ended October at 3751 billion ft3, a record increase of 2734 billion ft3 during the 1 April – 31 October injection season, and within 7% of the average of the last five end of season storage levels.

While end of October natural gas stocks are at a five year low, increased natural gas production, which has reached an all time high, and new pipeline projects will help meet winter natural gas demand. Higher production means that even if this winter were as cold as last year, EIA expects that natural gas storage at the end of March 2015 will be above its March 2014 level.

Heading into the refill season last spring, inventories were at an 11 year low after a prolonged and severe winter, approximately 1000 billion ft3 lower than the five year (2009 – 2013) average. Although, the refill season began slowly in April, injections quickly ramped up and exceeded five year average levels for 28 weeks in a row. The gap between the five year average and current inventories has now narrowed to 261 billion ft3. Analysts often refer to the injection season as ending on 31 October, but the peak in storage inventories may come later, as it is common for injections to continue into November.

High levels of injections over the summer were possible because of relatively low natural gas demand from the electric power sector as well as substantial increases in domestic natural gas production. Relatively mild summer temperatures led to lower than expected demand for air conditioning, allowing natural gas production to go to underground storage facilities rather than to electric power generators. Bentek data from April through October indicate consumption of natural gas in the electric power sector averaged approximately 2% less than last year’s level and roughly 16% below its level during the summer of 2012.

The October Short Term Energy Outlook (STEO) projects inventories will drop 1532 billion ft3 by the end of the heating season in 31 March, 2015. This projection is based on National Oceanic and Atmospheric Administration (NOAA) projections for relatively normal winter weather with temperatures much milder than the winter of 2013 – 2014. Even if the weather this winter matches last year’s cold temperatures, it is unlikely that stocks would drop to March 2014 levels (when inventories were at an 11 year low). This is largely because of the gains in domestic natural gas production. As of August 2014, dry natural gas production was 3.5 billion ft3/d greater than the same month last year. Continued high levels of production expected through next spring will also help reduce the need to withdraw natural gas from storage over the upcoming winter.

Falling natural gas prices have reflected the increase in supply, reports EIA. Following sustained cold weather this past winter, daily spot prices at the Henry Hub benchmark rose to six year highs in February, spiking above US$ 7/million Btu on three separate occasions. Prices have declined over the past several months, as weekly inventory additions have been consistently high and production continues to rise.

Adapted from a press release by Emma McAleavey.

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