Storage capacity will be full by the end of June. If wells currently planned for completion aren't immediately shut in the gas will have to go to the spot market which will drag down the futures.
We're looking for sub $2.oo.
Planned production cuts by US natural gas firms will not be enough to keep natural gas prices supported this year, and analysts say that record storage levels and mild weather could push New York Mercantile Exchange Henry Hub prices below $2 per million British thermal unit later in the year
Production cuts announced by US gas companies led US natural gas futures to rally in price this week after hitting 10-year lows in mid-January, but analysts say record storage levels and warm weather conditions leading to reduced demand will constrain further price rises.
Natural gas prices hit their lowest level in a decade on January 19, with the New York Mercantile Exchange (Nymex) February Henry Hub price sinking to $2.36 per million British thermal unit (MMBtu), the lowest since February 2002. But prices rose this week, with Henry Hub settling at $2.73/MMBtu on Wednesday (January 25).
As a response to poor market conditions, Chesapeake Energy, the second largest natural gas producer in the US, announced earlier this week that it intends to reduce its dry gas production by up to 500 million cubic feet per day in 2012 or about 8% of its current overall production. As well, it will reduce its operational dry gas drilling activity by 50% in the lead up to the second quarter of 2012.
Another market player, Talisman Energy, has also announced that it will reduce its capital spending in North America to $1.8 billion in 2012 – a reduction of $400 million – and will reduce drilling activity in its dry gas plays.
In a similar move, oil and gas producer ConocoPhillips will shut in approximately 100 million cubic feet natural gas per day (down from its average of 2.5 billion cubic feet per day) for its fourth-quarter production.
Other companies are likely to follow, given the record surplus of gas – 3.290 trillion cubic feet, 21% above the five-year average, according to the US Department of Energy – currently being stored due to unexpected warm winter conditions. "You're going to see more announcements by gas companies, just because of the reality of how much gas is in the system," says Teri Viswanath, director of commodity research at BNP Paribas....MORE