U.S. natural gas supply continues to set all-time records, and strong production growth is expected to continue. Most of these supply gains will come from the Northeast, where another round of pipeline capacity additions are being completed. But despite all this incremental gas output, a combination of cold weather last winter and hot weather this summer means that U.S. gas storage inventories are likely to end the fall season at their lowest levels since 2005. And even this comparison understates how low inventories are — gas consumption has grown dramatically in the past 10 years, and storage inventories are at all-time lows when considered in terms of the number of days of average consumption. Today, we begin a series on the implications of historically low gas storage inventories, including what the gas market might look like if this winter turns out to be colder than normal.
Thirteen years is a lifetime in energy markets — and especially the last 13 years in the U.S. But U.S. gas storage inventories are going to enter the winter at their lowest levels since 2005. During this period, the national expectations for long-term domestic gas production flipped from one of gradual decline to one of everlasting abundance. With the supply situation so night-and-day, how do you go about comparing the significance of unusually low gas storage inventories in 2018 and 2005?
The fall hurricane season is as good a barometer as any for understanding how the gas market has changed in the intervening years. In last week’s LNG Voyager, we discussed the impact of Hurricane Michael on offshore gas production in the Gulf of Mexico: the Category 4 storm took about 10% of offshore production out of the market, equivalent to a few hundred million cubic feet per day. Back in 2005, though, hurricanes Katrina and Rita — each a weaker storm than Michael — combined to reduce federal Offshore Gulf of Mexico production from an average of 10.2 Bcf/d in the April-July period in 2005, to just 4.3 Bcf/d for October of that year. So it’s hardly a surprise that post-Katrina/Rita prices skyrocketed to more than $10/MMBtu and late-summer storage injections slowed to a crawl. (The yellow line in Figure 1 shows 2005 storage levels, as reported by the Energy Information Administration, or EIA.)