In its Short-Term Energy Outlook released on November 12, the US Energy Information Administration (EIA) reported that natural gas storage inventories were 3,571 bcf as of October 31, 2014. This figure is notable because it is about 7% below the 5-year average level of gas in storage for the end of October. On the other hand, the October 31 inventory is quite impressive considering that it represents a record level of injections over the summer, which helped replenish inventories that were 50% below normal at the end of last winter. Between April 1 and October 31, 2,730 bcf of gas was injected into storage.
Some observers credit the mild summer weather as the reason so much gas was available for injection. Mild temperatures reduce demand for natural gas in power generation to meet air conditioning demand.
However, closer analysis shows there was a lot more behind the recovery of storage inventories than just the mild weather.
Comparing the EIA data for this summer versus last year, supply and demand each rose by 160 bcf, despite demand in power generation and the residential sectors respectively having fallen by 56 bcf and 61 bcf this summer compared to last. In addition, the US imported 77 bcf less gas this summer than last summer. With net higher demand and lower imports, a record storage injection was achieved this summer only because wellhead production in the US grew at a significant rate. 657 bcf more gas was produced in the US in the summer of 2014 as compared to the year before. The result of these changes in supply and demand among others led to 651 bcf more gas injected into storage than the same period in 2013.
This is a significant observation. It’s not just a cool summer that allowed us to dodge the bullet on storage refill this summer. The ability of production growth to fill the inventory gap while also meeting higher market demand is evidence of the magnitude of this supply growth. That trend is expected to continue, which should help to keep the lid on gas prices going forward.
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