Tuesday, February 24, 2009

See? There's Going to be a U.S. Gas Glut...

An earlier post indicated a likely natural gas glut in America later this year due to a surplus of imports. Platts is also foreseeing an upcoming gas glut, forecasting a possible drop to $2 per MMbtu.
Ron Denhardt, vice president of natural gas services for Strategic Energyand Economic Research, said in his latest monthly report that "prices arelikely to average below $3.50/MMBtu during April through October and it isquite possible that prices will decline below $2.00/MMBtu."

Denhardt pointed to weather-adjusted working gas storage pulls runningabout 8 Bcf/d behind last year, as well as total industrial production inJanuary coming in 10% lower than in January 2008. Among heavy gas-consumingindustries, primary metals output has fallen 36%, while agricultural chemicalshave fallen back 20% and total chemicals production has fallen by 12%.

A portion of the gas-demand drop "could be explained by the gas-intensivesectors declining more than average industrial production," the analyst said, adding that power-generation demand for gas likely has fallen in the wake of ashutdown of commercial facilities. Assuming normal weather, Denhardt projects storage levels at the end ofMarch to reach 1.666 Tcf--well above the 1.247 Bcf reached last year and thefive-year average of 1.486 Tcf. As a result, he said, unless producers takesteps to substantially shut in production, working gas in storage could reach4.4 Tcf by the end of the traditional injection season on October 31.

"This is 400 to 500 Bcf greater than capacity," Denhardt said. "Thus, themarket could absorb the loss of substantial production because of hurricanesor strong demand from hot weather with a minimal impact on prices."
Liquefied natural gas imports also are likely to put strong downwardpressure on US gas prices, as an expected decline in Asian LNG demand thisyear and next should coincide with a growth in global LNG production next yearof about 7 Bcf/d. Denhardt predicted that US LNG imports this year could reach1.7 Bcf/d or higher, compared with a relatively meager 1.1 Bcf/d last year.

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