The Energy Information Administration (EIA) announced that US natural-gas supplies in storage rose by 104 billion cubic feet in the week ending June 2. While this figure exceeds expectations, some of the natural gas in storage has been reclassified, leading to a decrease of 14 billion cubic feet in working gas stocks the previous week in the non-salt South central region. However, total working gas in storage for the week ending June 2 was at 2.55 trillion cubic feet, marking an increase of 562 billion cubic feet from the same weekend last year and 353 billion cubic feet higher than the five-year average.
Implied Flow and Pressure on Natural Gas Oversupply
Although last week’s data showed a slight decrease of 14 billion cubic feet in levels of working gas stocks, the implied flow indicates that natural-gas inventories increased by 118 billion cubic feet to working gas stocks. Working gas refers to the stocks available in the market. While the growth in inventories may indicate a slight alleviation of pressure on natural gas oversupply, concerns remain about more fundamental issues causing the continual increase in US crude production activity and natural-gas oversupply.
The Issue of Oversupply and Reduction in Profitability
The current oversupply of natural gas in the market, largely due to the boom in US shale-gas production, is reducing profitability. The price pressure generated by oversupply and the associated production costs present a major issue for natural gas prices. Furthermore, the continued increase in major field and pipeline supplies can cause a continued rise in surplus levels, with gas supplies expected to exceed working consuming capital. The trend of natural-gas utility companies investing less in new production and global exploration can lead to a market collapse and inadequate gas supply in the future.
Potential for Gas Supply Shortage: Investment and Infrastructure
Balancing the consumption and demand pressures around natural gas supply, there exists the potential for a gas-supply shortage within the next decade, given growing global demands and lack of investment. Consumers’ reduced investment in new production and global exploration has resulted in inadequate infrastructure, under investment and of course inconsistent commodity prices, all of which place the industry at risk of a market collapse and shortage of gas-supply shortages. In response, production companies need to invest, reduce operating costs, and generate renewable energy resources to mitigate these risks to the industry.
Conclusion
Natural-gas industries are facing significant pressures from the overabundance of supply, falling profitability, external pressures from price-induced factors, and the potential for a shortfall in energy production. The industry must tackle issues of oversupply and navigate the transitions in demand in the future trading market to ensure that the market can support supply and there is enough supply to meet the demands of end consumers and also maintain market stability and sustainable profitability.
