US natural gas supplies are strong and will remain that way for the foreseeable future, according to an association of gas producers and marketers.
The amount of gas in storage is on track to meet this year’s expected winter demand, which should help lower prices, said Jenny Fordham, director of energy markets and government affairs for the Natural Gas Supply Association (NGSA).
Fordham said that while gas production from the Gulf of Mexico has been dropping in recent years, producers have met consumer demand by developing new gas finds in unconventional shale fields in Texas and in Marcellus shale field, which stretches from New York to West Virginia. NGSA also expects US LNG imports to strengthen in future years, although competition from world demand will continue to limit imports in the near term.
Separately, in a research report to clients this week, Raymond James & Associates analyst Marshall Adkins said the bank’s gas model shows that the US will be on the verge of shutting in gas production—resulting in a gas price collapse—if it experiences normal summer weather, based on the recent 10-year average.
Raymond James expects domestic gas production growth to continue to grow at a 4-5 bcfd rate throughout 2008, as drilling activity ramps up, potentially offsetting production decline rates for several years. “We put the odds of a natural gas price collapse at 50%,” the report said. “If summer weather is warmer than normal, incremental cooling demand should eat away at storage levels, bolstering double-digit natural gas prices. If the weather is milder than normal (i.e., colder than the 10-year average), then natural gas storage could exceed 3.65 tcf, and late summer natural gas prices could fall to $6/Mcf,” the report said.
On May 22, the contract for June delivery of gas on the New York Mercantile Exchange closed at a recent high of $11.697/MMbtu. That is the highest closing price since the post-Hurricane Katrina rally in late 2005 and early 2006. This week’s EIA natural gas storage release showed an 85 bcf stockbuild, putting working gas in storage at 1,614 bcf, down from a year ago but little changed from the 5-year average.