Tuesday, May 11, 2010

Growing Natural Gas Storage Fails to Slow Drilling


Natural gas production continues to grow while demand remains stagnant. As a result, the amount of natural gas flowing into storage continues to grow and generally at a faster pace than most commodity experts and petroleum analysts have been expecting. The latest weekly storage injection of 83 billion cubic feet (Bcf) exceeded analyst estimates by 3 Bcf. For the week ending April 30th, total gas in storage was 1.995 trillion cubic feet (Tcf), which was 5.1% ahead of the volume in storage at this time last year and 18.8% above the five-year average.

The latest weekly storage injection of 83 billion cubic feet (Bcf) exceeded analyst estimates by 3 Bcf.....

As shown by the chart below, after falling back into the middle of the five year average range of storage volumes beginning in January, storage volumes are now at or above the top end of the five year range. April is the start of the shoulder season for natural gas demand. That means demand is low because winter is over and the air conditioning load from hot summer weather has yet to arrive. Industrial and commercial gas demand remains weak as the economic recovery is advancing at a slower than desired pace. But the bigger problem is the continued high level of gas related drilling, especially in the gas shale basins.

The bigger problem is the continued high level of gas related drilling, especially in the gas shale basins.....

There are many pressures on oil and gas companies to drill their gas shale leases even in the face of weak natural gas prices. The need to hold the leases for which many of the companies have spent large sums of money is one pressure. Another is to use the money raised on Wall Street or through joint ventures and/or creative financing ventures. Lastly, the companies have pledged to investors that they will grow their production volumes at above industry growth rates. As a result, when we examine the pattern of changes in rigs drilling.....



For natural gas and rigs drilling horizontal wells compared to the trend in natural gas futures prices, we see why the industry seems reluctant to slow down its drilling.....Read the entire article.


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