Author Archives: Chris McGill

As the year closed, the natural gas market could not find a reason to impose a significant price spike on what had been very low gas acquisition costs (near $3.00 per MMBtu at Henry Hub for much of December.

However, strong supply and relatively mild temperatures in many parts of the nation have cooperated to only impose subtle influences on price movements in the face of the 2011-12 winter heating season. Quantifying that relationship, domestic production in 2011 has risen 7.4 percent year-over-year from 2010, reflecting additional gas produced from shale formations and sold into market.

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As the year nears its close, the remarkable fact to look back upon is that shale gas development has reshaped the nation’s supply environment. Domestic production has risen 2.1 percent year-over-year, growth reflecting additional gas produced from shale formations and sold into market.

The resulting boon of domestic gas has reduced average imports via pipeline from Canada and LNG re-gasification terminals, both of which have decreased in volume year over year. We also see strong gas-in-storage volumes entering the winter season, with working gas reaching a record peak for a second year in a row.

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The current market summary for natural gas is fairly straight forward and reflects the events of the past year. Domestic production is growing and even though U.S. consumption of natural gas is up slightly (about 2.5 percent) due primarily to gas to power generation and seasonal heating loads in early 2011, prices are down.

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A cold week in early November especially for the South, Northeast and West has put the country on notice for the coming winter heating season. With that said, the general mood is very positive for reliability and pricing this winter heating season: natural gas dry production is at record levels, even though more drilling resources are being directed toward oil; storage levels entering the winter heating season will likely peak at more than 3.8 Tcf in 2011 – settling at or above record levels; and yes, while pipeline imports and LNG sendout are down year-over-year, sufficient available capacity remains to meet a weather-driven spike in demand (constraints on transportation infrastructure notwithstanding).

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