Although much of the narrative in the energy sector has been fixated on the crude oil losses, natural gas faces many of the same challenges as demand slips and production remains not far from record highs. Additionally the very same storage concerns that are working against exploration & production companies in the oil patch are also creeping up for gas producers. With the action firmly bearish, US natural gas prices have once more plunged below $2.000 per mmBtu, trending closer to the 16-year low that was touched back in December. Although the rebound since then has come on the back of strong seasonal demand and inventory draws, the glut remains intact and unlikely to abate until more companies within the space begin to default and declare bankruptcy.

Output Grows Despite Prices

Even with prices not far off from multi-year lows, producers remain steadfast and undeterred as evidenced by the EIA report from last week that showing that output gained 0.50% over the previous week with gross production rising by 1.18% over the prior year. While consumption has generally grown and lately has been strong thanks to slightly colder weather conditions, supply continues to outpace demand by a wide margin as evidenced by rising amounts of gas in storage. According to figures for the week ending February 5th, total US stockpiles fell by 70 billion cubic feet to 2.864 trillion cubic feet in storage. Even with the substantial drawdown that followed a 12.60% jump in weekly demand, inventory levels are still 25.00% higher than they were a year ago.

Rock bottom prices have not deterred production as evidenced by the annualized pace of increase. The majority of the impact has directed towards the plummeting rig count as evidenced by the latest Baker Hughes rig count released last Friday. According to the most recent data, operational gas rigs numbered 102, falling by 2 rigs over the prior week ad compared to 300 producing rigs a year ago. Even with fewer active rigs, output remains especially strong as evidenced by the rising production in the lower 48 states. However, a day of reckoning is coming for the industry as production cannot persist permanently with prices at current levels.