Weekly net natural gas deliveries were up slightly from the previous week. The U.S. Energy Information Administration (”EIA”) reported that U.S. natural gas inventories increased by 29 billion cubic feet (”Bcf”) for the week ended October 30, 2009 (previous week was an increase of 25 Bcf) bringing the amount of natural gas in storage to a new record high of 3,788 Bcf Bcf. Natural gas inventories were 379 Bcf higher than last year at this time and 414 Bcf above the 5-year average of 3,374 Bcf.
Some are again raising concerns (as HRN has in past articles) with the U.S. reaching its physical storage limitation. However,with weekly natural gas injections falling to 25 Bcf, the time frame to reach this physical storage limitation was deferred well into the winter heating season.
Meanwhile the number of rigs drilling for natural gas in the U.S. climbed by 6 this week to 734, according to a report today, which is still 52% below the same week last year. Many traders point out that production has not slowed much referring to government data last week reporting gross August gas output in the U.S. was up 0.8% from July and was ~ 0.4% above year-earlier levels. However, production levels were not expected to drop significantly until the end of October when major hedge contracts expired.
Though the rig count is still down by 52% from last year we are stilling looking at the number of shale gas wells that were drilled across across North America but perhaps not completed or put into production yet. There is expected to be considerable activity in the shale gas basins over the winter drilling season which may be problematic when entering this winter heating season with record high inventories if we see milder winter temperatures in the Northeast heating states. The last thing the natural gas industry wants to see is the winter heating season ending with record high natural gas inventories at the same time as shale gas plays in Northern BC (and elsewhere) start announcing flow testing results in March/April.
And remember. The natural gas industry does not coordinate their efforts amoung each other. Each producer is left to make their own decisions with shutting in production and or cutting exploration drilling activity. As prices creep up, some producers will move forward with drilling activity while others might take a more wait and see approach. For example, this past week Talisman announced new land acquisitions and their plans to drill at least 20 pilot wells in their Montney play this year. In other cases, some wells have been vertically drilled and are waiting for completion. Natural gas producers can only wait so long before they turn shut in production back on and accept the reality of a new base price of around $5.00.
With a good winter cold snap inventories will hopefully be drawn down to average historic levels before natural gas producers accept price realities and start opening up shut in production again.
