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I N N O V AT I O N S • V O L . V I I I , N O. 1 • 2 0 1 6
United States Natural Gas Prices Feel the
Pressure as Storage Reaches Record Levels
Jeff Moore
SENIOR ENERGY ANALYST, PLATTS BENTEK PRODUCTS
Global
Perspective
This past fall, natural gas prices in the United States came under extreme
pressure as storage inventories filled to record levels. Data from the Energy
Information Administration (EIA) showed that in the middle of November,
storage inventories in the 48 contiguous U.S. states exceeded the previous
record set in 2012 at 3,929 Bcf and topped out close to 4,000 Bcf. As
storage facilities reached capacity, excess volumes were pushed onto the
market, pulling U.S. natural gas prices below $2 per MMBtu for several
days in November 2015. In August 2015, Platts Bentek outlined the storage
situation and its possible long-term consequences in a report titled “Too
Much of a Good Thing: What Record Storage Would Mean for 2015/2016.”
According to the report, the low U.S. prices were necessary to bring natural
gas into the electric generation stack to compete with coal. The price drop in
the fall boosted demand for power generation to new levels: In October and
November, average demand was close to 25 Bcf/d, an increase of nearly 4 Bcf/d over the previous year.
Another factor that contributed to the demand for natural gas over coal in the past year: The new policy from the
United States Environmental Protection Agency (EPA), known as the Mercury Air and Toxins Standards (MATS) ruling,
took effect in 2015 and shuttered approximately 15 GW worth of coal-fired generation during the year. The combination
of these coal retirements and low natural gas prices set up 2015 as the record year for natural gas consumption for
electricity generation.
Even with the record demand for power generation, natural gas prices still came under pressure as production
continued to pace above year-ago levels. The increase in supply helped push inventories to record levels and keep
the downward pressure on natural gas prices across the United States. However, as prices of both natural gas and oil
continue to come under pressure, producers’ drilling activity is slowing down, which is halting the production growth.
New demand in 2016 should allow for some relief
to natural gas prices as the United States opens its
doors to the global market and ships its first cargos
of liquefied natural gas (LNG) as early as January
2016. U.S. LNG exports are expected to ramp up
through 2016 as export capacity at Cheniere’s
Sabine Pass terminal in Louisiana is completed.
Furthermore, additional pipeline infrastructure will
allow for more volumes to flow across the border to
Mexico, and exports in 2016 are expected to pace
along at record levels. This new outlet of demand,
combined with stagnating supply, will help bring the
natural gas market closer to balance in 2016.
Map& globe art by
freevectormaps.com.Natural Gas Storage