The answer: A production cut of about 2 billion cubic feet per day, says Rusty Braziel of Bentek Energy. But don’t hold your breath on that happening, or demand ratcheting up from the other direction.
To recap: natural gas prices are near 7-year lows due to a big drop-off in demand thanks to the economic slowdown, and the surge of production that followed success in the many shale plays throughout the country. The completion of a number of natural gas pipeline projects in recent years also helped.
But production is still up over last year, by about 2.7 Bcf, says Braziel. This is because at the well-head producers are still able to make money on natural gas below $4 per million British thermal units, at least for producers east of the Sabine River (to use a rough geographic rule of thumb).
And there’s little mystery as to where these natural gas resources are, Braziel says, since companies have been drilling through them for decades to get at conventional oil and gas formations.
“You may as well drop the ‘E’ from E&P,” Braziel said, because the companies don’t need to explore, just produce.
The excess production is quickly filling up natural gas storage sites (and more sites are being planned), which may drive us to full capacity (about 4 tcf) in the coming weeks. This all serves to keep downward pressure on prices as new production has to compete for business with gas coming out of storage.
Platt’s said its survey of analysts predicts tomorrow’s storage data will report injections smaller than both last year’s 82-Bcf build and the five-year-average injection of 56 Bcf, due to factors such as hot weather in the Northeast. But the heat won’t last too long, so the bite into the record oversupply won’t be huge.
So, Bentek’s price predictions: below $3.50 at least through October. The company will keep making monthly price predictions through a new “Market Call” report, and will grade itself on its prior month predictions.