Discoveries

Natural gas prices, trading at $4.52 per million Btu as I write this post, are not likely to recover for many months. The latest storage report from the Energy Information Administration said 176 billion cubic feet of gas were withdrawn during the week of January 16, bringing storage levels down to 2,560 Bcf.

That inventory is in line with last year’s level of 2,580 Bcf, and nearly dead on the five-year average of 2,560 Bcf for mid-January.

In the face of stable storage, however, the demand side of the picture is gloomy. U.S. industrial use of natural gas is falling quickly, so even extremely cold weather for the remainder of the heating season is not likely to raise prices. Estimates of industrial activity lag storage data, so the precise size of the decline is not yet clear.  In October 2008, the EIA reported that industrial use was 537.8 Bcf, down 2% from prior-year demand. Furthermore, gas burned for electric power generation was also off, falling to 543.7 Bcf last October, down 61 Bcf from October 2007 volumes.

The economy has certainly suffered a broad decline since October, and unfortunately neither metric bodes well for already low commodity prices.

–Peggy Williams, Senior Exploration Editor, Oil and Gas Investor

Contact me at pwilliams@hartenergy.com

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