Gas Storage Could Hit Its Limit By Late Summer

May 2012, Vol. 239 No. 5

U.S. natural gas prices are at a decade low, at about $2.20 per Mcf. That marks an unprecedented discount to crude oil. With “injection season” now under way through October when warmer weather allows for rebuilding gas inventories, this could make an already bad glut of gas far worse.

The mild winter and bountiful supply have left gas inventory higher than ever for this time of year. April will kick off with inventories near 2.5 Tcf, 900 Bcf above the five-year average. The nation’s gas storage capacity of 4 Tcf could be full by mid-August, with 12 weeks left in the injection season. Since gas would have nowhere to go, prices could, in theory, turn negative, some experts fear.

Market forces will do their best to counter that as the cheap gas prompts more utilities to switch from coal. Industrial companies such as Dow Chemical also are reacting by using more cheap gas. However, even if surplus production is soaked up, storage facilities may hit capacity more than a month early.

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