Natural Gas Production Outpacing Storage Capacity

August 2012, Vol. 239 No. 8

Reports from the U.S. Department of Energy indicate that natural gas production is beginning to exceed the nation’s storage capacity, threatening another price declines over the next few months.

Output, already at unprecedented levels in 2011, will rise another 3.4% this year as companies continue to exploit gas in shale formations. Production from the Marcellus Shale doubled in April, when prices dropped below $2 per million Btu for the first time in a decade.

Natural gas closed in on $3 in early July as power plants added supply in place of coal. However, demand still cannot keep supplies from exceeding 3 Tcf, a record at this time of year. Some pipeline companies are telling producers not to ship gas in excess of contracted amounts, something that usually doesn’t occur until September, regulators noted.

“By the end of summer, when storage is close to being maxed out, we could make another run close to $2,” said Stephen Schork, president of Schork Group Inc., a consulting firm in Villanova, PA. “There is too much supply and not enough demand.”