A Glut For Natural Gas Too?
Oil is not the only energy source that is seeing a glut. Growing supplies of natural gas could soon result in a similar phenomenon.
It was only a year and a half ago that the United States, and the northeast in particular, saw supplies dwindle to exceptionally low levels, forcing prices to temporarily spike. The Northeast experienced a freezing winter, leading to high levels of consumption as millions of people tried to keep warm. Natural gas storage levels plummeted to lows not seen in years.
The severe drawdown in storage levels during that cold 2014 winter raised fears that the situation would be even worse the following year. With inventories depleted, another brutal cold could blow a huge hole in storage levels.
Related: Busting The “Canadian Bakken” Myth
And while the northeast did have a rough winter in 2015, and consumption levels were just as high as the year before, something different happened this time around: US drillers produced a record level of natural gas in 2014, allowing inventories to quickly rebuild. After storage levels ran well below their five-year average (see chart), by the beginning of 2015, as production continued to rise, storage tanks filled up and overall inventories bounced back to the average.
(Click to enlarge)
That caused residential natural gas prices to crash back down to earth late last year and in the first few months of 2015, with no repeat of gas price spikes that were seen in 2014.
As inventories rise, prices fall. While that is good for consumers, shale gas drillers are beginning to worry. As production piles up and inventory levels were rapidly repaired, what happens next? Further inventory builds could turn the adequate supplies into a glut. By November, storage levels could surpass 4 trillion cubic feet, a record high, according to energy analysts.
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