Could US natural gas run out of storage capacity?
We keep reading about how US natural gas prices are depressed because of the glut of supply and unseasonably warm weather, driving down demand. Hard to argue with this – gas production has boomed since 2009 and the winter in North America has been rather balmy.
But there is another, quite unique, aspect to the natural gas market that we wanted to drill (pun intended) into: capacity.
Unlike most commodities, natural gas has a fixed maximum capacity — and it’s fast filling up. According to calculations by Shiyang Wang and Michael Zenker at Barclays, the US is starting this “injection season” at 60 per cent full, compared to 41 per cent last year and 39 per cent in 2010.
It is getting to the point where the US Energy Department’s weekly natural gas storage report is increasingly becoming essential reading. And, surprise surprise, it was bad news again this week, with a net injection of 25 billion cubic feet from the previous week. Storage volumes are now 871 bcf higher than a year ago at 2,512 bcf. For reference, total US capacity is estimated by Barclays at 4,150 bcf for this year.
In their April 17 ‘Gas and Power Weekly Kaleidoscope’, Wang and Zenker note (emphasis ours):
This means that storage can accommodate combined US and Canadian average weekly injections of no greater than 61 bcf/week between now and the start on the next heating season, compared with 5-year average injections of 91 bcf/day.That’s quite a contrast. So, what would happen if supply exceeded these amounts and the US ran out of capacity before the next heating season (starting in November)?...MORE