It's a Gas Gas Gas

Bubbling supplies bring down the price

Natural gas supplies are more than adequate as we wind up the winter heating season. Weather plays a key role in the demand for the odorless and colorless commodity used to warm our homes because production is fairly predictable given that few supplies are shipped in from overseas.

Taking a look below, you can see that producers pump gas into storage during the warmer summer months and utilities draw down these stockpiles in the winter when the weather turns colder. Abnormally hot summer temperatures can slow the buildup of supplies because some utilities require natural gas to produce electricity.

Working Gas in Underground Storage Compared with 5-Year Range

Source: Form EIA-912, "Weekly Underground Natural Gas Storage Report." The shaded area indicates the range between the historical minimum and maximum values for the weekly series from 2004 through 2008.

But the abnormally steep recession we have entered has cut into industrial demand, resulting in excess supplies and additional pressure on prices. The cost of natural gas has plummeted to a six-year low and is also down nearly 75% from the high reached last July, which could give consumers considerable savings next winter.

However, the Energy Information Administration reports that rig count has dropped in half since September and that should eventually cut into natural gas production. Gas production is up through January, versus a year ago, but uncertainty continues to characterize the market, the EIA said, as both the duration of the falloff in industrial demand and the timing and magnitude of the expected decline in production remain unknown.