Depressed Natural Gas Prices Look To Rebound

By : Subscribe to Angelo's | May 25, 2012 10:14 PM IST

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The cost of natural gas, which has languished for two years and last month hit lows not seen in a decade, is rebounding despite a 5.5 percent price drop earlier this week.

For the last two years the price of natural gas, per million British thermal units, has ranged from $3 to $4, and in April it fell to $1.82, its lowest price since September 2001.

The price fell for several reasons, the main one being that hydraulic fracturing and horizontal drilling technologies have sent the nation's natural gas reserves soaring. Another reason is the mild weather this past winter. The U.S. Energy Information Administration says there were up to 36 percent fewer days than average of high heating demand between November and March nationwide, resulting in a decline in demand of six billion cubic feet of natural gas per day. 

Since that April low, natural prices have been edging up. Gas for June delivery at Henry Hub, La., was down nearly six cents, to $2.58 on Friday, after dropping nine cents the day before, to $2.65. 

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"Prices have turned up a little bit, so it might have producers still putting gas into the market," said James Williams, energy economist for WTRG Economics in London, Ark. "When natural gas hits $3 to $3.50 producers tend to switch to coal. Below $3 and people just aren't drilling."

Williams said he expects the price to climb to $3 in August or September as demand for air conditioning peaks heading toward the fall; that's when fuel storage begins to rise before the colder months when demand is higher than production.

Lower-than-expected inventories of natural gas may also help lift the price. 

The EIA said on Thursday that natural gas storage rose by 77 billion cubic feet for the week ended May 18, just below the 78 billion cubic feet estimate by a Dow Jones survey of analysts. Storage is still down from the same period a year ago, by 23 billion cubic feet. 

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