DJ Natural Gas Likely to Cause More Driller Indigestion--Ahead of the Tape
By Spencer Jakab
Chances of a white Christmas in the U.S. haven't been so low in at least a decade. That has natural-gas drillers
feeling blue this holiday season.
The heating fuel has shed nearly a third of its value since late November, trading at about $3.17 a million
British thermal units, and may face even more short-term pressure. The immediate culprit is mild holiday weather. But
there are also nasty structural factors at play. The price drop is more bad news for North American energy producers
reeling from the epic drop in crude prices.
The heating, or withdrawal, season for natural gas, when underground storage is drained, is well under way. It
looks different than last year when inventories fell rapidly.
Warm winter weather last week in major U.S. population centers probably led to another subpar withdrawal, a figure
that will be reported Wednesday by the Energy Department. Analysts at First Enercast Financial expect storage to drop
by 59 billion cubic feet for the week ended Friday. The average withdrawal for the corresponding week over the past
decade has been 131 billion cubic feet.
Although there has been a glut in the natural-gas market for over five years, prices rallied in the spring and
again in the fall as reserves plunged and traders bet on a similar seasonal pattern repeating this winter. Instead,
reserves as compared with a year earlier went from a whopping 1 trillion cubic feet less in March to a small surplus
most recently. Last week's draw is expected to leave supplies some 165 billion cubic feet above year-ago levels, the
most since October 2012.
The Natural Gas Supply Association's winter forecast doesn't provide much reassurance: It sees winter temperatures
11% above last year and production at a record. In the slightly longer run, though, there is some reason for hope.
The collapse in the oil price and more recently in those of fuels derived from natural-gas liquids will curtail
many shale projects that would have added to supply next year. In some cases, oil and liquids revenue was sufficient
that drillers could almost literally give away their gas or even burn it off.
The oil rout means there is at least a faint light at the end of the tunnel and it may not even be a gas flare.
Write to Spencer Jakab at spencer.jakab@wsj.com
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(END) Dow Jones Newswires
December 23, 2014 15:01 ET (20:01 GMT)
Copyright (c) 2014 Dow Jones & Company, Inc.
122314 20:01 -- GMT
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