The US Natural Gas Update for Fall 2014

By Vernon Trollinger, September 12, 2014, Energy Efficiency, News

The US Natural Gas Update for Fall 2014

Natural Gas Storage as of 08/29/2014. Image courtesy of

Last winter’s whirling blob of arctic atmosphere, the Polar Vortex, paid several chilly winter visits to the United States, causing a drastic drain on natural gas supplies. On April 4, 2014, natural gas in storage fell to 826 billion cubic feet (Bcf). Just how low were supplies in storage? For comparison, the lowest amount in a five-year period on the same date was 1591 Bcf. So, supplies were quite low.

The DOE’s Energy Information Agency (EIA) says the average 2013 daily consumption was 71.34 Bcf. Using their storage figures, that works out to a 12-day supply. Of course, that’s an over-simplification of how the industry works and production had been ramping up well before that date. All the same, winter price spikes coupled with dwindling supply kept natural gas markets nervous into April even as demand slackened and prices lowered to about $4.35/mmBTU.

Undemanding Summer

Because natural gas use in the power sector continues to expand, early summer prices bubbled along the $4.50/mmBTU mark . Temperatures started off hot and southern states braced for an extended cooling season. The southwest and the coastal northeast experienced above-normal temperatures while California and Oregon experienced much-above-normal temperatures from May through July.

Yet, most of the country has experienced lower temperatures than average. Electricity demand has since been steady but not overwhelming. In mid-July, natural gas prices began receding due to fewer air conditioners running at full steam, falling to $3.80 territory in August.

chart copyHigh Production

Current natural gas production is strong at 42.450 Bcf per day. Two of the largest growing shale gas sources in the US are the Marcellus and the Utica shale formations. The Utica formation lies about 7,000 feet below the entire Marcellus formation. But in eastern Ohio, the layer curves upward and is easier to drill, becoming one of the fastest growing natural gas production plays in the country. Meanwhile, the Marcellus accounts for almost 40% of U.S. shale gas production producing 15 Bcf/day. Spot prices at the Marcellus trading are sometime below the benchmark at Henry Hub, making it the least expensive source for wholesale natural gas.

Storage Race

Going into the summer, drilling companies knew from experience that too many strong producing rigs put them at risk of saturating the market. While lower demand since mid-July has wilted prices, it hasn’t blunted production. Average prices this summer for the coming winter contracts have been running higher than last summer due in part to the lower storage levels.

Rebuilding the winter supply has been an ambitious undertaking. Just to bring supplies near to the 3,834 Bcf in storage at November 8, 2013 has meant gathering 2,600 Bcf from the beginning of April through the end of October 2014. Natural gas in storage rose to 2,709 Bcf (August 29) – the 5-year minimum is 2988 Bcf. Storage injections have been at record amounts —typically above 75 Bcf (averaging around 80). Current estimates are that inventories will reach 3,431 Bcf by October 31. Still, it should be remembered (perhaps a little optimistically) that many injections this summer have been above market expectations. Plus, in many years injections continue onwards into November.

In other words, supply might not be as dire as all that.

Fall Outlook

The EIA Short Term Energy Outlook (STEO) “expects spot prices will remain below $4/MMBtu through October, before rising with winter heating demand. Projected Henry Hub natural gas prices average $4.46/MMBtu in 2014 and $3.87/MMBtu in 2015.” Weather is the mitigating factor, as usual. The National Weather Service’s 90 day outlook calls for above-normal mean temperatures across the west, along the east coast as far south as Florida while below-normal mean temperatures will predominate the central plains towards the southwest.

But— depending on the strength of an emerging el Niño pattern, above-average warmth could spread across the central plains by December. As this area of the country heavily relies upon natural gas for heating, above-average temperatures will have a direct effect on the supply and price of natural gas and electricity rates.

Over the next month or so, energy prices will settle into their annual autumnal trough. Since the emerging el Niño’s effects on temperatures will be unclear, there’s still room for volatility in long term natural gas prices and your electricity rate.

That means now is a smart time to start shopping for a fixed-rate retail electricity plan for your home or business. Fixed-rate electricity plans are a smart long-term investment that can insulate your wallet from winter’s volatile energy costs by keeping your electricity bill predictable. Customers in the deregulated areas of Texas, New York, and Pennsylvania should look to the great plans offered by Bounce Energy – complete with rewards!

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A native of Wyomissing Hills, PA, Vernon Trollinger studied writing and film at the University of Iowa, later earning his MA in writing there as well. Following a decade of digging in CRM archaeology, he now writes about green energy technology, home energy efficiency, DIY projects, the natural gas industry, and the electrical grid.

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