The glutted U.S. natural gas market could see some rare tightness and higher prices this winter if cold temperatures prevail

By Spencer Jakab
Oct. 23, 2017 10:28 a.m. ET

After nine years of booming production of natural gas, this winter could be one of the rare instances when supply and demand conspire to drive up prices.

Those expecting prices to rise have had plenty to point to on the demand side of the equation: Scores of industrial plants have sprung up to take advantage of cheap fuel, the U.S. has become a major exporter of gas, and coal plants are closing in droves in favor of environmentally friendlier and more flexible gas-fired generators.

The supply side of the ledger has been just as dynamic, though. The recent boom in oil drilling in shale basins such as the Permian has unlocked cheap gas almost as a byproduct. New pipelines will make it easier for the fuel to reach market. U.S. natural gas production is seen rising for the eighth month in a row in November to a new record.

Even so, this winter could see prices go up. No matter how much gas is being produced, the heating season, which runs roughly from November through April, sees underground gas inventories depleted far faster than supply can replenish it. The “injection season,” which unofficially ends in two weeks, is when the surplus is built up.

Last Thursday, the U.S. Energy Information Administration reported that gas in underground storage stood at 3.646 trillion cubic feet, or 4.7% less than the same week a year ago. That isn’t a huge difference, but it might be if this winter is extra cold because of La Nina conditions, as some climatologists predict. Analysts at The Natural Gas Supply Association, American Gas Association and Barclays Capital all have noted the possibility of a frigid winter.

For some perspective, the winter of 2015-2016 was remarkably mild and saw prices crash to their lowest this century in February. Stored gas fell by just 1.4 trillion cubic feet. But the cold winter of 2013-2014 saw a draw of 2.95 trillion cubic feet. Prices soared in February 2014 to nearly double their price a year earlier.

Gas prices, at roughly $3 per million British thermal units, are about where they were at this time last year. But storage is starting this heating season around where it was during the 2013-14 winter. The margin of safety in the gas market shouldn’t be taken for granted before the glut resumes in the spring.

http://www.wsj.com/podcasts/natural-gas-prices-could-rise-this-wint...

 

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