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Marcellus expected to help refresh nation's natural gas reserves

March 25, 2014 - Ben Klein
Post-Gazette, Associated Press

Just as this harsh winter broke records nationwide, so did the amount of natural gas that was available in storage and used to heat homes and businesses.

The inventory of natural gas in storage nationally, which has fallen to an 11-year low, will start to be replenished between April and October.

While storage inventories are low, the Marcellus Shale region is generating the supply needed to help refill the deficit, said Joe Gregorini, vice president of rates and regulatory affairs for Pittsburgh-based Peoples Natural Gas.

“The supply will be there, and companies [that operate storage facilities] will be looking to fill it,” he said. “The Marcellus and other shale plays have plenty of gas to deal with events like this winter.”

Jeff Moore, energy analyst for Denver-based Bentek Energy, said the market is “poised for record injections” this summer.

“We have record production," he said. "We have a huge hole to fill. The two go hand-in-hand. The Marcellus will help fill the storage fields in the east.”

Even so, storage inventories overall may not reach the high levels seen in the past few years. High injections, meaning the amount put back into storage, “would not fully erase the deficit in storage volumes caused by this winter’s heavy withdrawals,” the U.S. Energy Information Administration reported in its short-term energy outlook.

While the harsh winter has helped fuel an increase in prices, they’ve avoided volatile spikes, said Erica Bowman, vice president of research and policy analysis for Washington D.C.-based trade group America’s Natural Gas Alliance.

“We’ve seen incredible withdrawals this winter, and natural gas prices have been stable, with the exception of pipeline constraints affecting New England,” Ms. Bowman said. “But from a system performance standard, the natural gas system performed well. Everyone with firm contracts received the gas they asked for.”

Ms. Bowman noted that natural gas is a fuel source that is a little different than other commodities.

“Nuclear really just services the power sector," she said. "Oil serves transportation and the petrochemical industries. Natural gas is interesting in that you have nearly an equal share of demand across the economy from power generation, residential and commercial use and the industrial sector,” Ms. Bowman said. “So the market tends to use the power generation sector as a balancing mechanism.”

In 2012, natural gas prices tumbled to $2/Mcf to $3/Mcf, which gave the power generation sector an incentive to burn more natural gas rather than relying on coal, Ms. Bowman said.

In 2014, America’s Natural Gas Alliance is forecasting a natural gas spot price range of $4.25/Mcf to $4.50/Mcf — a less attractive price range for power generators, Ms. Bowman said.

“That’s not to say it won’t play a role, but I don’t think you’ll see the huge [natural gas] power burns that you saw in 2012,” she said.

The EIA is also predicting a “robust” injection season between April and October with nearly 2,500 billion cubic feet to be added to storage as drillers seek to rebuild inventory levels before the next winter heating season.

Still, the winter has taken a toll.

The EIA expects that by the end of October — after natural gas producers have had time to send their supply to storage facilities — the amount of natural gas in storage will be at its lowest level for that time of year since 2008.

The agency reported March 20 that, for the first time in more than a decade, the amount of natural gas in storage nationally fell below 1 trillion cubic feet (Tcf) as of March 14. That’s down 49.4 percent from about 1.89 Tcf during the same time last year.

As of March 14, storage levels had hit “the lowest inventory since 2003, which was obviously a different market. There was lower production, less infrastructure, and less storage capacity then,” Mr. Moore said.

“We have a lot more production now, but the real issue is that we have higher electricity demand and higher natural gas demand in winters," Mr. Moore said. "I don’t believe we’ll get to last year’s storage levels. Every year, we’ve seen year-over-year power burn growth, and 2012 really set the high mark because low prices incentivized companies to burn more natural gas. So, how low can power burn go, and how high can production climb?”

 
 

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