Three Trillion Cubic Feet

That's how much natural gas the US has in storage, 3.153 tcf to be precise - that's 19.7% above the five-year average and 23.2% above last year's level. (link)

The U.S. Energy Information Administration is expected to report that 64 billion cubic feet of gas were added to storage during the week ended Aug. 7, according to the average prediction of 17 analysts and traders in a Dow Jones Newswires survey. The storage estimate surpasses last year's 51-bcf build in storage and the five-year average injection, which was 42 bcf.

The EIA is scheduled to release its storage data Thursday at 10:30 a.m. EDT.

If the storage estimate is correct, inventories as of Aug. 7 will total 3.153 trillion cubic feet, 19.7% above the five-year average and 23.2% above last year's level.

Added: US gas demand is expected to decline 2.6% this year.

- Brewskie

Chesapeake's Gas Production Growth Continues Unabated

So much for cheap gas and oversupply: Chesepeake Energy Energy Corp., America's largest independent gas producer, saw production grow 5% in the second-quarter compared to a year ago:

Production grew 4% from the first quarter of the year, and proved reserves grew 5.7% from a year ago.

The increase signals that Chesapeake is apparently abandoning the strategy it adopted earlier this spring of turning off some of its wells due to low prices. Prices haven't improved much since April, when the company said it was shutting down about 13% of its production, but the company has nonetheless turned those wells back on.

[...]

Chesapeake warned, however, that the industry may be forced to shut off some wells later this year as storage facilities and pipelines fill up, leaving no room for more gas. Earlier on Thursday, the Energy Information Administration reported that the amount of gas in storage had risen 71 billion cubic feet in the past week to more than 3 trillion cubic feet, 19% above normal.

Storage levels are rising because U.S. companies are continuing to produce more natural gas even as the recession has driven down demand for the fuel, which heats more than half of American homes and generates roughly a quarter of the nation's electricity. The glut of gas has driven the price down to under $4 per million British thermal units, from a high of more than $13 per million BTUs last year.

But in recent days, companies that have reported big production gains have seen their share prices rise, despite fears that increased supplies could keep prices low. Newfield Exploration Co., for example, saw its stock jump 11% Thursday after it reported unexpectedly large production growth.

[...]

Chesapeake saw some of its biggest production gains in the Haynesville Shale, a massive natural-gas field in northern Louisiana and East Texas that the company discovered last year. Chesapeake's production there grew 85% in the second quarter from the first quarter.

- Brewskie

Gas Reserves Continue to Grow

Pass the Beeno; US natural gas reserves continue to grow:

The Energy Department's Energy Information Administration said in its weekly report that natural gas inventories held in underground storage in the lower 48 states grew by 71 billion cubic feet to about 3.023 trillion cubic feet for the week ended July 24.

Analysts had expected an injection of between 70 billion and 74 billion cubic feet, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The inventory level was 18.8 percent above the five-year average of about 2.545 trillion cubic feet, and 23.3 percent above last year's storage level of about 2.452 trillion cubic feet, according to the government data.

- Brewskie

Gas Glut Can't Stop Gas Development

The WSJ has a post on the gas glut. It lists three impressive gas developments in process:

» If the emergence of big new gas fields such as the Haynesville, Barnett and Horn River weren’t enough, now comes the Granite Wash. It’s not a newfangled nconventional gas field, but its yielding some big wells. Newfield Exploration said on Wednesday night that its first seven horizontal wells in the Granite Wash play that straddles the Texas/Oklahoma border had average initial production rates of 22 million cubic feet a day. Those are big, big wells.

» Add another growing gas field that you probably never heard of: the Eagle Ford. Down in South Texas, near Laredo, companies are beginning to drill horizontal wells into the shale formation with encouraging results. A couple weeks ago, St. Mary Land & Exploration said one well was flowing at the oil and gas equivalent of 5.6 million cubic feet a day. More news should be coming when Petrohawk, an Eagle Ford participant reports its earning in the next few weeks.

» Range Resources recently said that its development of the Marcellus Shale, a big wedge of gas-bearing rock that covers much of Pennsylvania and bits of adjacent states, was going very well. The company is producing the oil and gas equivalent of 50 million cubic feet a day from the Marcellus – and expects to nearly double that by year-end 2009 and double it again by year end 2010.

- Brewskie

Fat Bears Not Leaving Gas

I found this amusing Seeking Alpha piece on America's natural gas situation:

Natural gas prices stayed remarkably strong this week, despite two very bearish developments. This is actually bullish, when a market won’t go down on bad news. Yet I still think this downturn in natural gas prices could be longer than people think. I am not buying natural gas stocks right now.

The bearish points this week were:

1) An injection into storage this week of 114 bcf, the fourth week in a row of 100 bcf + injections. (I don’t think this has ever happened before.) Expectations were for 105 bcf, and almost double last year’s injection for the same week.

2) The rig counts in North America turned slightly higher this week, for the first time in 2009. In the regular Friday report from Baker Hughes, US gas rigs were up 6 over last week, and horizontal rigs were up 20 - which deliver a lot more gas than verticals. Canadian rigs had a much bigger percentage jump, up 35 to 143. About 66% of all rigs in Canada drill for gas (though this number is surely going lower). Of course, these numbers all half of what they were a year ago.

[...]

I think there are a couple points that could prolong this natural gas price downturn longer than people think:

1. Banks did not dramatically cut back on credit lines for the producers this year, despite a big drop in gas prices. So even though a natural gas producer was operating close to its debt limit, it wasn’t forced to make the tough choices to survive. This painful process of keeping alive a dying patient will now be drawn out longer than normal.

2. New junior companies cannot get financed. So when two or more companies merge, one management team is out of a job. And in this market, they won’t get a new one. So management has no incentive to sell or merge.

3. The banks are saying - I have two sick patients, each having 80% of their debt drawn, and they want to create one larger sick patient with 80% of its debt drawn….no thanks.

4. Most junior and perhaps even some intermediate companies are receiving very little cash flow right now and still have some fixed costs - like regular interests payments on their debt…even a little cash flow is better than none. So I think they will be hesitant to turn off the tap, no matter how the small the drip.

5. And again, LNG is a wild card. If Asian demand doesn’t pick up soon, the global fleet could be coming to North America and keeping prices here suppressed.

- Brewskie

Pass the Gas-X, Please; Supply Bump Expected

The Energy Department is expecting another jump in US natural gas reserves:

The Energy Department will likely report a 108 billion- to 113 billion-cubic foot jump in natural gas reserves on Thursday for the week ended May 22, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

[...]

A reading above or below estimates can influence market trading.

Last Thursday, the EIA said natural gas inventories held in underground storage in the lower 48 states rose by 103 billion cubic feet to about 2.12 trillion cubic feet for the week ended May 15.

- Brewskie

Asia's Got a Gas Glut, Too

The always dependable Big Gav has this on Asia's gas glut...

Supplies of liquefied natural gas from proposed plants in Australia, Papua New Guinea and Indonesia may exceed demand in the Asian region by at least 57 percent, data from Wood Mackenzie Consultants Ltd. show.

The combined capacity of some LNG projects in Papua New Guinea, Australia and Indonesia is more than 44 million metric tons while the Asia-Pacific market, led by China, requires 28 million tons a year in 2015, Noel Tomnay, Wood Mackenzie’s head of global gas and power research, said in a report yesterday. The projects are seeking approvals in 18 months, he said.

“The Pacific offers a last bright spot for sellers as Wood Mackenzie forecasts China demand growth to retain a tight market in the 2013 to 2015 period which is currently propping up long- term contracts,” Tomnay said in the e-mailed report. “But the balance is a delicate one which may shift in just the next 18 months.”

Exxon Mobil Corp., Chevron Corp., Royal Dutch Shell Plc, Total SA and Mitsubishi Corp. are among those developing LNG ventures in Australia, Indonesia and Papua New Guinea. China is building more than 10 LNG terminals on its eastern coast to meet a target of doubling the use of the cleaner-burning fuel.

LNG sellers’ market influence will wane in the next few years, Wood Mackenzie said. Natural gas prices are set to decline because of recession and lower demand that contributes to a supply glut.

- Brewskie

The Gas Glut Won't Die (and Other News)

Natural gas futures fell to the most in nearly 2 years as supply rises...

Natural gas futures fell the most in almost two years after a government report howed a bigger-than- forecast increase in U.S. inventories, as the recession cut demand for the industrial fuel.

Stockpiles rose 103 billion cubic feet last week to 2.116 trillion cubic feet, the Energy Department said. Analysts expected a gain of 95 billion. Supplies were 22 percent higher than the five-year average as factories and power plants trimmed purchases during the worst economic slowdown in a half century.

This LNG terminal may have nothing but time, spider webs...

A liquefied natural gas industry expert from Houston says the new Canaport LNG terminal in Saint John may not be as busy as anticipated when the project began.

Construction is nearly finished at Canaport LNG's onshore facilities in Saint John, and Repsol Energy Canada is expecting its first commissioning tanker to arrive by the end of next month.

Barbara Shook, the Houston bureau chief for the Energy Intelligence Group, a research organization that covers the oil and gas industry, said recent large-scale discoveries of shale natural gas deposits in Canada and the United States have lessened the need for imported liquefied natural gas.

Shook said that could affect the number of LNG tankers coming to Saint John.
"They couldn't be operating at a worse time. Instead of being short natural gas, North America is in another glut," Shook said.

China is hosting its first shale gas conference; US-based Harding Shelton co-hosts...

Harding Shelton Group (HSG), a team of U.S. experts in shale gas development based in Dallas, TX and Oklahoma City, OK, co-hosted with Yangtze University an unprecedented sharing of technology in a two-day symposium organized by PetroChina and the Chinese Petroleum Society. Culminating the conference was the signing of documents that set up the structure through which PetroChina, HSG and the university will evaluate the shale gas potential in China.

[...]

"The opportunity to produce shale gas in China is similar to what has taken
place in the United States in highly productive areas like the Barnett Shale.
Collaborative efforts with China can address the challenge of demand for new
energy sources through this technology exchange," said John Shelton, HSG
Chairman.

HSG, through Harding Shelton Energy Consulting (Beijing) Limited, signed a Memorandum of Understanding with PetroChina's Research Institute for Petroleum Exploration and Development in Langfang (RIPED-Langfang)
for evaluating shale gas as a new energy resource for the coal-dependent
country. The collaborative effort will also include studying drilling
technologies that would be unique to the various basins of China. HSG and PetroChina will be working with the energy laboratories at Yangtze.

And in a small side-distraction, the town of Hunginton, NY, has recently announced it will fuel its fleet of garbage trucks with CNG. Bravo, guys!

The board approved a resolution authorizing Supervisor Frank P. Petrone to apply for $260,000 in federal stimulus funds administered by the Long Island
Clean Cities Coalition to help purchase two new compressed natural gas
garbage trucks and to retrofit two existing trucks to run on compressed natural gas. The total cost of the project is $574,000; the application is for the maximum reimbursable amount.

[...]

The town already has 18 hybrid vehicles and one alternate fuel vehicle, the car assigned to Petrone. The town hopes to have the first of the trucks in service
by the end of the year.

- Brewskie

Natural Gas Futures Fall to Six-Year Low

Gas supplies are still bloated...

Natural gas futures reached a fresh six and a half year low Monday as ample gas supplies and weaker demand resulting from the economic downturn weighed on prices.

Natural gas for May delivery on the New York Mercantile Exchange recently traded 8.9 cents, or 2.70%, lower at $3.208 a million British thermal units. The contract fell as low as $3.155/MMBtu - the lowest since September 2002 - after opening floor trade at $3.188/MMBtu. Nymex options on May natural gas futures also expire on Monday.

Natural gas prices were under pressure from robust levels of natural gas storage and domestic production, which has remained strong despite the decline in the number of rigs drilling for natural gas.

"People keep looking for sings that production is starting to be shuttered. But we really haven't seen it yet," Gene McGillian, an analyst with Tradition Energy in Stamford, Conn., said.

Natural gas prices have have lost more than 75% of their since last July, when prices peaked at $13.694/MMBtu.

In response to that decline, natural gas producers have pulled back on drilling activity to stem the flow of natural gas into a market the oversupplied gas market.

The number of rigs drilling for natural gas in the U.S. has fallen by more than half from a peak last September of 1,606 rigs, according to oilfield services company Baker Hughes.

Natural gas storage levels have also swelled as demand for the fuel among industrial users of gas began tapering off.

Natural gas in U.S. storage stands at 1.741 trillion cubic feet - 35.8% higher than last year and 22.7% above the five-year average.

- Brewskie

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.

Part of the article can be read from below:

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.

Get Ready for the U.S. Gas Glut

Seven giant overseas gas export terminals are expected to start up this year, expanding worldwide capacity by 20%. There's only one problem: the torrid world economy is dampening gas demand. With producers unlikely to scale back, with a slew of new LNG tankers and expensive gas export terminals coming stream, there's only one place that has the capacity and the appetite to absorb excess gas - the United States, where three trips to the energy buffet are never enough.

Below are excerpts from the article (link):

“It’s completely counterintuitive,” said Murray Douglas, a global LNG analyst with Wood Mackenzie in Houston, who is predicting U.S. LNG imports will grow 30 percent to 456 billion cubic feet this year and to more than 1.1 trillion cubic feet by 2013.

“We don’t believe Asia and Europe will be in a position to absorb this new production, and the U.S. is the only market that can take it, that has a large amount of storage.”

Other analysts, including Houston-based Waterborne Energy and Raleigh, N.C.-based Pan Eurasia Enterprises, agree that an American gas import surge may be coming.

Even the Department of Energy updated its LNG import predictions for 2009 recently to include the possibility of such a surge.

LNG imports could be a challenge to shale gas producers:

The wave of imports might even be strong enough to challenge growing domestic natural gas production from various shale formations, including the Barnett Shale near Fort Worth and Fayetteville Shale in Arkansas.

“This can put pressure on U.S. gas prices and could delay the full development of some of the new shale projects,” Douglas said.

- Brewskie