Natural gas prices in North America continue to push lower, extending 10-year low

Analyst Commentary, Matthew Bovencamp: Natural gas inventories in the United States are approximately 59% higher than the 5-year average levels, and approximately 50% higher compared to the same time last year. The higher storage levels are primarily due to increased production, warmer weather, and low demand from the slow pace of the global economies. 

Over the past decade, improvements in recovery methods have converted otherwise non-economic gas reserves to economically feasible reserves. The United States has increased their proven reserves of natural gas through the development of unconventional shale plays, with estimates of over 100 years of gas at current production levels. The estimated global reserves are at over 200 years at current levels. The increased reserves and production, as well as low demand, have depressed natural gas prices significantly, with the spot price trading around $2.00 at Henry Hub (March 29, 2012). The price level is becoming uneconomical to continue drilling for natural gas and a number of companies are now cutting production in a bid to curtail the declining price. 

Natural gas is a promising alternative fuel source for the United States with their massive reserves and the environmental benefits of burning natural gas compared to oil, not to mention their intent to reduce reliance on foreign energy. However, investments and possibly political backing is necessary to increase demand through natural gas vehicles and fueling stations as well as technological improvements to the transportation of natural gas for international resale. Until then, we believe natural gas prices will continue to remain depressed.

Source: Bloomberg (Mar 30), US Department of Energy

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