Americans are burning a record amount of natural gas as they use electricity to cool their homes, and demand is expected to keep rising.
But the increased use hasn’t led to higher prices. Instead, prices are near a three-year low, with spot prices on track for their weakest summer in more than two decades.
The problem is production.
Analysts believe the natural gas market is not trading on demand fundamentals because supply growth continues to far outpace rising consumption. Energy firms are pulling record amounts of oil from shale formations and with that oil comes associated gas that needs either to be shipped or burned off.
Kyle Cooper, a consultant at ION Energy in Houston, said, “All the bulls are gone.”
Even with new natural gas pipelines coming online later this year, the trend in low prices is expected to continue.
So much associated gas is coming out of the ground that gas prices in the Permian basin in Texas and New Mexico, the biggest U.S. shale oil formation, have turned negative on multiple occasions this year.
Meg Gentle, CEO of U.S. LNG company Tellurian Inc., said current pipeline expansion plans will not meet record gas production in the Permian, leading to severely depressed prices at the Waha Hub in West Texas, which touched a record low of negative $9/mm btu in April.
The U.S. Energy Information Administration projects gas production will rise 10% to 91 billion cubic feet per day in 2019 after soaring 12% to a record 83.4 bcfd in 2018, its biggest annual percentage increase since 1951.
One billion cubic feet is enough gas to fuel about five million U.S. homes for a day.