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  • A bearish market for natural gas

    By Don Stowers
    The head of Mercator Energy, a Rockies drilling company, recently predicted “massive drilling curtailments” this summer due to a continuing “glut” of natural gas supplies, which will soon include large volumes of LNG scheduled to arrive in the United States at about the same time that gas storage capacity begins to fill up.

    Mercator’s John Harpole, speaking at an oil and gas conference in Denver, said that a number of factors are contributing to the oversupply problems. First, at the current injection rate, he noted that storage facilities will be nearing capacity limits by late summer, which means the already saturated market will be flood with gas. In addition, Harpole said that LNG imports have increased more than 200% year over year as of early April. This, he said, could result in “massive shut-ins” as natural gas prices plummet lower and lower. Producers around the country will see this as a signal and will begin shutting in production, he added.

    On the positive side, it was noted that there has been a 225% rise in gas-fired electric power generation since 1996, while coal-fired generation has remained fairly static during this time. Nuclear and hydroelectric power generation haven’t changed much either. Renewable energy, especially wind power, has risen significantly during the past decade but still remains a relatively small part of the total energy mix. In electric power generation, natural gas still affords the greatest opportunity for growth and increased market share.

    Therefore, say many analysts, the long-term outlook for natural gas looks good, but in the short term, oversupply will lead to lower prices and further production cutbacks.

    What’s your take on this? How low will natural gas prices drop this summer?