(John Kemp is a Reuters market analyst. The views expressed are
* Chart 1: tmsnrt.rs/2dKHFan
* Chart 2: tmsnrt.rs/2dKGyre
* Chart 3: tmsnrt.rs/2dKIwYv
* Chart 4: tmsnrt.rs/2dKHN9O
* Chart 5: tmsnrt.rs/2dDMwGj
By John Kemp
LONDON, Oct 3 The U.S. natural gas market is on
an unsustainable trajectory as consumption grows rapidly while
domestic production is falling.
Gas production was down nearly 4 percent in July compared
with the same month a year earlier, according to data published
by the Energy Information Administration.
Marketed dry gas production amounted to 2,212 billion cubic
feet in July 2016 compared with 2,304 billion cubic feet in July
Low gas prices have discouraged drilling of gas-rich
formations and caused production to start falling after rapid
growth in 2014 and 2015.
There were just 86 rigs drilling for gas at the end of July,
down from 209 at the end of July 2015, according to oilfield
services company Baker Hughes.
Drillers are becoming more efficient, targeting a small
number of super wells that produce enormous amounts of gas, but
higher productivity has not been enough to offset the drilling
At the same time, consumption is hitting record levels,
especially for electricity generation, where cheap gas has
captured market share from coal.
Power producers burned a record 1,184 billion cubic feet of
gas in July, 9 percent more than in July 2015, and easily beat
the previous record of 1,118 billion cubic feet set in July 2012
Some of the increase in gas consumption has been driven by
unusually high temperatures and airconditioning demand this
Temperatures across the most populated areas of the United
States have been consistently above normal since the end of May.
But gas consumption has been unusually high even once the
high temperatures and airconditioning demand are taken into
Power producers' gas consumption was almost 6 percent higher
in July 2016 than in the previous peak in July 2012 even though
population-weighted cooling degrees days were nearly 5 percent
Climate policy is encouraging power producers to retire old
and inefficient coal-fired generation plants and replace them
with more efficient and cleaner burning combined cycle gas
Low gas prices have accelerated the switch by encouraging
power producers to reduce run rates at coal units and maximise
run rates at gas-fired plants instead.
Power producers have burned their way through most of the
surplus of gas left over at the end of the record warm winter
Working gas stocks in underground storage stood at 3,600
billion cubic feet on Sept 23, an increase of just 90 billion
cubic feet or 2.6 percent compared with a year ago.
The year-on-year storage surplus has shrunk from 1,017
billion cubic feet or 70 percent back on March 23, according to
data from the Energy Information Administration (tmsnrt.rs/2dKIwYv).
Gas stockpiles have shown below-average increases for 21
consecutive weeks as high airconditioning demand, strong
underlying gas consumption and falling gas output have
rebalanced the market (tmsnrt.rs/2dKHN9O).
Within the next 2-3 weeks, U.S. gas stocks are likely to
decline below year-ago levels, as stocks continue to build
Winter of 2016/17 will almost certainly be colder than the
record warm winter of 2015/16, ensuring higher gas consumption
for heating, though how much colder remains uncertain.
But with gas stocks normalising, supply falling, demand
increasing, and more gas-fired power plants scheduled to start
up over the next 12 months, prices will have to rise to moderate
the power burn and spur more drilling in 2017.
(Editing by William Hardy)