Yesterday’s EIA natural gas storage report showed ample supplies continuing through March. Inventories are 13.3% higher than average for this time of year and almost 20% higher than last year. But the rig count makes many analysts think prices will rise in the second half of the year unless economic collapse sends demand even further down.
Cooler than normal weather sent storage levels down at a faster pace than normal last week (20% faster), but average temperatures moving forward appear to make way for Spring inventory stability soon. Prices may fall in the near-term on the high storage levels, but then production will probably fall because companies have cut back on their new drilling.
The number of natural gas rigs in the US was reported by Baker Hughes today to have fallen to 884, a 45% decrease from its peak last September and the lowest since May 23, 2003. The recent fall in rigs leads the EIA to predict in their March Short Term Energy Outlook that US natural gas production will stagnate in 2009, after robust growth of ~6% in 2008. It may even fall significantly later in the year.
In Canada (our main source of natural gas imports), supplies appear set to slide. Their rig count dropped over 20% last week to 220, down almost 50% from its peak a few months ago. With decline rates generally higher than 20% per year, it won’t take long for lower rig counts to translate into lower production – which will then send prices back up to the marginal cost of production or higher.
So, a continued focus on efficiency and replacement by renewables will be crucial to prevent natural gas prices from spiking above $8 per MMBtu again soon. I’ll be sure to share the quick changes in the natural gas and larger energy sector as they continue to develop.
Tags: 2009, Natural Gas, prices, rig count