Working Crude Oil Storage Capacity at Cushing, Oklahoma Rises

As of March 31, 2012 working crude oil storage capacity at the Cushing, Oklahoma storage and trading hub was 61.9 million barrels, an increase of 6.9 million barrels (13%) from September 30, 2011 and 13.9 million barrels (29%) from a year earlier, as reported in EIA's recently released report on Working and Net Available Shell Storage Capacity.

Utilization of working storage capacity on March 31, 2012 was 64%, an increase from the 53% observed in September 2011, but lower than the 86% observed on March 31, 2011. The report also noted that operating shell storage capacity increased 8.1 million barrels (12%) from September 30, 2011 to reach 74.6 million barrels.

Both storage capacity and the level of inventories held at Cushing are closely watched market indicators, as Cushing is the market hub for West Texas Intermediate (WTI) crude oil that is the basis for crude oil futures contracts traded on the New York Mercantile Exchange. High inventory levels at Cushing have been a symptom of transportation constraints that have resulted in WTI trading at a discount relative to comparable grades of crude oil since early 2011.

Growing volumes of U.S. crude oil production, along with a higher level of imports from Canada, have helped contributed to the record levels of inventories at Cushing. Increased flows of crude oil from these two sources, along with expectations for future increases, have consequently created the need for additional storage at the hub.

Weekly data show that as of June 1, 2012, crude oil inventories held at Cushing were 47.8 million barrels, the highest level on record and very close to total working storage capacity as of March 2011. However, due to the growth in storage capacity between March 2011 and March 2012, the utilization rate for working storage capacity at Cushing has actually declined over the past 14 months.

U.S. Dry Natural Gas Production Growth Levels off Following Decline in Natural Gas Prices

U.S. dry natural gas production has increased since late 2005 due mainly to rapid growth in production from shale gas resources. However, there have been two notable instances (see red ovals in the chart) in the last seven years when natural gas production leveled off during a period of falling spot natural gas prices. The first was during the recent economic recession and the latest began in the fourth quarter of 2011 and continued through the first quarter of 2012.



Weather events (see green ovals) have also affected U.S. natural gas production.
The major events over the past seven years that have caused dry gas output to level off or even decline include:

Hurricanes Katrina and Rita (Sep-Oct 2005) - Disrupted up to 12.2 billion cubic feet per day (Bcf/d) in offshore natural gas production.

Hurricanes Gustav and Ike (Sep 2008) - Disrupted up to 9.5 Bcf/d in offshore natural gas production.

Economic recession and falling prices (Oct 2008- Sep 2009), Reduced industrial and manufacturing activity, and lower electricity use eased demand for natural gas as a feedstock and a power generation fuel. Natural gas prices fell sharply as a result.

Winter well freeze offs (Feb 2011) - Disrupted up to 7.5 Bcf/d in natural gas production from Texas to Arizona, when water froze inside wellheads during extremely cold weather and blocked gas flows.

Supply overhang and falling natural gas prices (Oct 2011-Mar 2012) A warm winter that reduced heating fuel demand and record high gas inventories resulted in a nearly 50% drop in gas prices, causing some energy companies to postpone new drilling and cut back on some existing operations.

Natural gas production was relatively flat between October 2011 and March 2012, when Henry Hub spot gas prices declined from just above $3.50 to around $2.00 per million British thermal units in March. Preliminary EIA data indicate a slight drop in production during March, according to the Natural Gas Monthly report released on May 31.

Of the five large gas producing states tracked monthly by EIA Texas, Louisiana, New Mexico, Oklahoma, and Wyoming, New Mexico had the highest percentage decline in its March gross natural gas production, down 2.2 percent from the previous month, while Texas had the largest volumetric drop, down 150 million cubic feet per day. States that EIA does not presently track on a monthly basis, such as Pennsylvania, may have seen their gas output increase during March.

Get Today's 50 Top Trending Stocks

Top 5 Producing States Combined Marketed Natural Gas Output Rose in 2011

Start the trading week with "Today's 50 Top Trending Stocks"

Combined marketed natural gas production from the top five natural gas producing states...Texas, Louisiana, Wyoming, Oklahoma, and Colorado increased by about 7.5% in 2011, although their share of total U.S. natural gas output fell slightly to about 65%.

Marketed natural gas production from these states in 2011 totaled 15.7 trillion cubic feet (Tcf), according to annual data from the U.S. Energy Information Administration. The drop in their combined share of total U.S. production reflects increased contributions from other states, particularly those in which operators significantly expanded development of shale gas formations. Shale gas production from states such as Pennsylvania helped boost overall U.S. natural gas output by almost 8% in 2011.

Source: U.S. Energy Information Administration, Marketed Natural Gas Production, and Colorado Oil and Gas Conservation 

Due primarily to drilling programs in the Marcellus shale formation, Pennsylvania's marketed natural gas production in 2011 more than doubled to nearly 1.3 Tcf, according to preliminary estimates from Pennsylvania's Department of Environmental Protection. Arkansas has also seen strong growth in its marketed natural gas production, with output more than tripling since 2007 due mainly to increased production in the Fayetteville shale play.

Alaska is the country's second leading natural gas producer in terms of gross withdrawals, but most of the state's production is not brought to market, as production volumes far exceed local demand and there is insufficient pipeline capacity to transport the gas to distant markets. Most of Alaska's natural gas not brought to market is re-injected into existing oil fields to provide sufficient pressure to maintain oil production rates.

Highlights from the top marketed natural gas producing states in 2011.....

Texas: Natural gas production increased 4.5% from the year before to the highest level since 1980, due in part to growing output from the Eagle Ford shale formation where drillers who are aggressively pursuing high-value liquid hydrocarbons are also producing growing amounts of natural gas.

Louisiana: Natural gas production increased 38% as the Haynesville shale gas formation in the northwest part of the state was one of the biggest shale gas producing plays in the United States.

Wyoming: Natural gas production fell 5.6% to the lowest level since 2007, as lower natural gas prices made coalbed methane gas that accounts for almost two-thirds of the state's natural gas production less profitable because high-priced gas liquids aren't normally found in coal seams.

Oklahoma: Natural gas production increased 3.9% to the second highest annual output since 1994 due to higher output in the Woodford shale play.

Colorado: Natural gas production grew about 1.4% as output increased for the 25th year in a row to break another record output high. The Niobrara shale play in the northeast corner of the state helped raise Colorado's natural gas production.

We are extending our “Trade Triangle Technology” 30 day trial and it’s only $8.95!

Crude Oil Industry Headline News

"Smart Money Moves Back into Energy, But Carefully"
A pair of deals by Oklahoma billionaire George B. Kaiser, widely considered one of the country's savviest energy investors, could be an early sign that after a massive selloff, the smart money is getting back into the oil industry....Complete Story

"Crude Hits One-Month Highs on Gas Spat Jitters"
Crude oil futures climbed more than $2 to above the psychologically important $50 a barrel Tuesday, spurred by concerns that a reduction in Russian natural gas flows to Europe could spark an increased demand for oil....Complete Story

"Chesapeake Energy Defies Skeptics"
Chesapeake capped a busy 2008 with the $412 million sale of natural-gas production in Oklahoma and Arkansas, proving to skeptics that the company knows how to get a deal done. Total value of Cheasapeake's deals for 2008 is roughly $12 billion....Complete Story

"OPEC Cuts Biting Into Oil Cos' Output Growth Areas"
Oil majors that derive a large part of their income from production in member states of the Organization of the Petroleum Exporting Countries are finding the cartel's production cuts are....Complete Story