US natural gas in storage was up 3 Bcf to stand at a new record high of 3,843 Bcf (0.3% higher then 2009 record) as of Friday, November 12, 2010, according to the weekly report from the Energy Information Administration (“EIA”). Although the injection was lower than expected, markets still responded to storage levels breaching 2009 heights and as a result, natural gas prices dipped down below $4. Inventories are now 13 Bcf higher than last year at this time and 327 Bcf (9%) above the 5-year average of 3,516 Bcf. At 3,843 Bcf, total working gas is above the 5-year historical range.
So we are now at the tipping point. As always and despite delays, winter arrives. Once winter season kicks in, consumption of natural gas in storage will be greater and faster then production can add into the system – regardless of current production levels (which are higher then historical levels). This is apparent with the single digit injection into the system. So we enter into a normal winter cycle for natural gas. Not quite.
As stated last year on HRN at this time, the trend to watch here is how the US has now set two consecutive storage records at the beginning of the winter heating season. Gas stockpiles may total 1.776 trillion cubic feet at the end of this winter heating season in March, up about 114 billion cubic feet from a year earlier, according to Energy Department estimates. Under average winter condititions this means that the winter heating season will end with a record amount of natural gas still in storage while producers continue to lower costs and increase production. To illustrate, lets say it takes 50 litres of gas to fill your tank. You let it run bone dry and put 50 litres in each week. But you dont drive as much, and when it comes to your weekly fill of 50 litres, your tanke is not bone dry. To emphasize, think if you then try to add 60 litres one week. You get the point.
US producers recognize this trend. In Canada, there has always been a surplus of natural gas and they have been a net exporter – to the US – of natural gas. However, with the US production levels reaching new highs, the US is also facing the probabilites of being a net exporter of natural gas (See HRN: US to provide clean low cost energy to China)
If you read any of the articles on the Horn River News you are aware that HRN is pro-natural gas as a cleaner alternative energy source to oil and coal. It is now clear that production from shale gas has proven the abundance of natural gas available in the US and Canada. Its a free market so if producers can not sell their gas in North America they sill seek markets overseas. Fair enough. But we continue to emphasize this is a opportunity lost that may have huge negative impact on North America down the road. By exporting lower carbon energy sources we are exporting an energy resource that will become increasingly important in a world pressured to lower carbon emissions (not to mention the economic benefits of domestic energy – compared to acquiring energy from “unfriendly” US sources. See Pickens’ Plan).
So as we see a trend to increasing natural gas supplies, Canada and the US can either increase domestic usage of this surplus or export it to the benefit of others. In Canada’a case their will always be a net surplus for export – perhaps referrably to the US – but in the US, this surplus can be easily put to good use, with extra supplies readily available from an established Canada-US distribution system. The bottom line is this resembles the same relationship Canada and the US had previous to the shale gas boom. But now with greater volumes of natural gas readily available, we simply need to increase consumption in transportation and power generation to offse some of the oil and coal used in these areas.
