April 9 (Reuters) - U.S. natural gas prices could rise in 2018 after utilities pulled the second biggest amount of gas from storage on record over the winter, even though the season was slightly warmer than normal.
That left total stockpiles about 20 percent below usual at the end of the heating season on March 31, and will require companies to add 16 percent more gas than usual into storage this summer just to get inventories back to normal levels before next winter.
Some analysts think the market is putting too much weight on rising production to refill inventories this year, and is not worried enough about a projected increase in domestic demand and exports.
“We feel the current market has become far too complacent and that prices are simply too low to account for demand growth and the amount of gas needed in storage for the next winter heating season,” Martin King, director institutional research at GMP FirstEnergy in Calgary, said in a recent report.
Prices for gas at the Henry Hub benchmark in Louisiana have averaged less than $3 per million British thermal units (mmBtu) since 2015, versus more than $5 over the prior 10 years, and are expected to remain below $3 through at least 2024 based on current futures trading on the New York Mercantile Exchange.
“If prices were to stay at (their current) $2.70 level over the course of the summer, that would boost coal to gas switching. We see prices having to move closer to $3.00/mmBtu this summer in order to lower these power burn levels and allow adequate storage refills ahead of winter,” analysts at Barclays, a bank, said in a recent note.
Electric companies can switch between burning more gas or coal in power plants depending on which fuel is cheaper.
U.S. utilities likely pulled 2,463 billion cubic feet (bcf) of gas from inventories during the November-March heating season, according to a poll of analysts by Reuters, the most since the “Polar Vortex” winter of 2013-2014 and the second highest on record.
One billion cubic feet of gas is enough to supply about 5 million U.S. homes for a day.
Analysts forecast total inventories by the end of October 2018 - the start of the next heating season - will rise to 3,654 bcf, compared with 3,817 bcf last year, a level that “should be of increasing concern to the market,” King at GMP FirstEnergy said.
If the amount of gas in storage on Nov. 1, 2018, is below normal, a cold winter could cut inventories to below 1,000 bcf by the end of March 2019. That would be the smallest amount of gas in storage since the end of March 2014, despite expected record production.
U.S. dry gas production is projected to rise to an all-time high of 81.7 billion cubic feet per day (bcfd) in 2018, but U.S. consumption is also expected to hit an all-time high of 78.2 bcfd in 2018. With exports rising to record highs as well, it does not leave a lot of extra gas to go into storage.
Reporting by Scott DiSavino; editing by Jonathan Oatis