Storage of gas beating forecast

Prices fall lower as stockpile rises

Natural gas prices fell to a seven-month low Thursday after a government report said the nation's stockpiles saw another record injection last week.

The U.S. Energy Information Administration said natural gas inventories rose 107 billion cubic feet to 2.129 trillion cubic feet during the week that ended July 11. The report eased concerns about replenishing stocks before winter, analysts said.

"I think people are getting more optimistic," said Michael Lynch, president of Strategic Energy and Economic Research Inc. "Especially the implication is that production is doing better than people expected."

Natural gas prices fell 4 percent to $3.95 per million British thermal units on the New York Mercantile Exchange on Thursday -- the lowest close since the end of November.

Lower temperatures and an increase in natural gas production has helped refill stockpiles that were depleted last winter, analysts said.

"Early on, people were anticipating the prices of natural gas could rally quite a bit on anticipation they won't be able to produce enough," said Phil Flynn, an energy analyst with Price Futures Group in Chicago. "Now because the summer has been relatively cool, we're seeing those supplies come back in a big way."

Flynn said natural gas producers "have been rising to the occasion."

A new concern is that if prices keep dropping, producers will have less incentive to drill, which could slow natural gas production and reduce the amount in storage, Flynn said.

So far, the cool summer has reduced natural gas consumption for power generation by power plants, said Jack Weixel, director of energy analysis for Bentek Energy, a unit of the energy publication Platts.

"We're about to reach peak demand for the summer season over the next few weeks," he said. "Going into this peak demand season ... it's unseasonably cool."

This will allow for more natural gas to be injected into storage, Weixel said.

But natural gas storage is still 25.5 percent below the five-year average and 22.2 percent below last year's level, leaving some concern about stores should there be another very cold winter, Flynn said.

"It doesn't sound really good, but it's better than where people thought we would be," he said. "The market has been encouraged because we've seen above average injections like seven weeks in a row."

Last winter, about 3 trillion cubic feet of natural gas was withdrawn from storage between Nov. 1 and March 31.

Forecasts by the Energy Information Administration earlier this year had natural gas storage reaching about 3.4 trillion cubic feet at the end of October, below the five-year average of 3.8 trillion.

If North America sees another cold winter, natural gas stockpiles will be low going into the spring, which could lead to a 50 percent price increase, Lynch said.

Business on 07/18/2014

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