August 21, 2009 Natural Gas Prices Plummet to a Seven-Year Low By CLIFFORD KRAUSS
HOUSTON — Natural gas prices plunged on Thursday to levels last reached in 2002 after an Energy Department report showed that the amount of gas in storage had hit a record high for this time of year.
The sharp price decline of natural gas, to below $3 per thousand cubic feet from a peak of over $13 last summer, has been caused by a drop in demand from factories and homes because of the recession, coupled with a big expansion of domestic production over the last few years.
“It is tough times in the gas business, certainly,” said Thomas F. Darden, chief executive of Quicksilver Resources, a major natural gas producer, after the government stockpile report was released. “Prices today are below our costs to produce, so in our view this is not a sustainable scenario.”
Even as it reflects weakness in the economy, the declining price of natural gas will be good for many industries and consumers. It is gradually bringing down utility bills for the 60 percent of American homes that use natural gas to fuel stoves, water heaters, furnaces and other appliances. And since natural gas is an important fuel for utilities and factories and a prime feedstock for the chemical and fertilizer industries, the price collapse helps cut their costs.
Kathy Mathers, a vice president of the Fertilizer Institute, a trade organization representing manufacturers and retailers, said rising natural gas prices over the last six years had forced 30 fertilizer plants, representing half of domestic production, to close. Foreign producers, with access to cheaper natural gas, have claimed more and more of the market.
Ms. Mathers said the price decline this year “provides important relief,” adding that “it won’t bring the old plants back but it will save the remaining U.S. production.”
Gas executives saw a silver lining, arguing that the low prices would help them make a case in the Senate when it takes up energy and climate change legislation later this year. The gas companies want federal incentives to sway utilities to switch to gas from coal, and they want more government entities and businesses to convert their diesel bus and truck fleets to compressed natural gas.
The House version of the legislation, passed in June, disappointed industry leaders who contended that coal interests got a better deal than they did, even though gas is a cleaner fuel.
The weekly Energy Department natural gas stockpile report showed that underground storage in the lower 48 states rose by 52 billion cubic feet, to about 3.2 trillion cubic feet, for the week that ended last Friday. That is a storage level 21 percent above the level a year earlier and 19 percent above the average for the last five years at this time of year.
It is normal for stockpiles to grow during the summer, but the current level is usually reached in late September or October.
Natural gas is produced from wells at a fairly steady rate, but use of the fuel is highly seasonal, so summertime production is stored in large reservoirs for use during the winter. The country has about four trillion cubic feet of gas storage capacity, almost entirely in tapped-out wells, salt caverns and aquifers.
Gas demand is so weak and supply so abundant that some experts think the country could run out of storage capacity before the winter heating season begins, requiring gas companies to reduce flow from their wells or even shut down production.