Natural-gas inventories plunged to 11-year lows this winter as prolonged cold weather in the United States led to record-breaking gas use, according to a weekly government report released Thursday.
Despite projections by the U.S. Energy Information Administration of high natural-gas production starting next month, analysts said Thursday that a hot summer could prevent stockpiles from being fully replenished by next winter.
“This has been a very long winter season, and unfortunately, we aren’t done yet,” said Samantha Santa Maria, managing editor of the Platts research firm. “There are all these concerns in the marketplace that we will need gas in storage and it may not be there.”
Natural-gas inventories are projected to be at 965 billion cubic feet at the end of the month, the first time the nation’s stores have been below 1 trillion cubic feet since 2003, according to the energy administration’s short-term energy report, released Tuesday.
The report said residential and commercial consumption of natural gas increased by 17 percent compared with the same period during the winter of 2012-2013.
About a half of American households use natural gas for heating, according to the agency.
Now as spring approaches, analysts are unsure whether natural-gas inventories can be rebuilt in time for next winter, saying it will depend on the summer heat and natural-gas prices.
“Can producers turn on the taps as hard as they can to bring us back to normal levels?” Santa Maria said. “They probably can.”
But a steamy summer could keep natural-gas inventories down, said Phil Flynn, an energy analyst with Price Futures Group in Chicago.
If there’s a strong summer demand for electricity to power air conditioners, power plants fueled by natural gas will eat into the supply, making it difficult to replenish the stock.
“If we have a hot summer we may not get back to full storage,” Flynn said. “So you’re kind of in this area where it will get warm, which is a good thing, but you don’t want [natural-gas] prices to get too low because we will need record production to get storage back.”
Drilling in some natural-gas areas, especially in the Fayetteville Shale, has slowed in recent years because of low prices.
“We haven’t seen a real return to aggressive drilling measures in those dry gas plays,” Santa Maria said. “We haven’t seen a lot of enthusiasm with producers with these prices” to resume drilling.
She said the increase in production in the Marcellus Shale in the Northeast can offset some of the decline in drilling in other areas.
Flynn said that to get inventories up to normal levels, “We are really going to have to step up production to get to the right place.”
As the demand for natural gas increased this year, so has the need for other heating fuels, said Santa Maria.
Average expenditures for households heating with propane are expected to be 54 percent higher this winter, compared with last year, according to the energy administration.
And expenditures for households using natural gas are expected to increase 10 percent this year.
The cold weather has affected propane prices, causing them to rise from an average of $2.08 per gallon in December to $4.20 per gallon in January, according to the energy administration.
Propane prices have since fallen to under $3 per gallon,but they are still higher than they were last year, the energy administration report said.
Natural-gas prices, which were volatile earlier this winter, hit an eight-week low Thursday after the agency’s report showed inventories declined less last week than previous forecasts.
Natural gas for April delivery fell 10.7 cents to close Thursday at $4.38 per British thermal unit on the New York Mercantile Exchange.
Flynn said natural-gas prices need to get a little higher to get production where it can fully replenish inventories.
“To produce a record plus, which is probably what we are going to need to get back to full storage … we are going to have to keep prices in the early part of the summer above $4 [per million Btu],” he said.
Front Section, Pages 1 on 03/14/2014