More Danger Lurks in Energy Industry -- Ahead of the Tape
December 09 2015 - 3:57PM
Dow Jones News
By Steven Russolillo
It's odorless, invisible and very, very dangerous for energy
investors.
Mild weather, tepid demand and low prices are hurting
natural-gas drillers, making a surfeit of the fuel all the more
worrisome. And with $40 crude oil compounding the problem, a number
of high-profile energy companies, including Consol Energy Inc. and
Chesapeake Energy Corp., find themselves in dire financial
straits.
One of the big problems today: The ability for the U.S. to store
natural gas is near full capacity. Last month underground storage
topped the four-trillion cubic foot mark in the contiguous 48
states for the first time ever, according to the U.S. Energy
Information Administration.
And while heating, or inventory withdrawal, season is still in
its early stages ahead of the typically frigid January and February
months, the question is whether the winter will actually spur
enough demand to significantly deplete storage levels. Weekly data
from the Energy Department, out Thursday, isn't expected to change
the grim situation.
Natural-gas inventories typically grow between April and October
in anticipation of the winter-heating season. Historically, they
start shrinking in early November when demand for heating fuel
increases. But only in the week ended Nov. 27 did inventories
actually start falling from record levels.
Analysts at First Enercast Financial expect storage to drop by
63 billion cubic feet for the week ended Friday Dec. 4. Over the
past five years, the average withdrawal for the corresponding week
has been 65 billion cubic feet, according to the Energy Department.
But it will take larger-than-average withdrawals to forestall an
even worse imbalance next spring.
Natural gas has lost more than a fourth of its value over the
past year and front-month futures sit near a three-year low of
$2.09 a million British thermal units. The situation contrasts with
2012, when prices briefly fell below the $2 mark that spring on
similar concerns. Today, natural gas has fallen for five straight
months and an immediate rebound doesn't appear to be in the cards.
The latest stretch of mild weather is expected to continue at least
over the next few weeks.
You can almost smell the fear in the energy industry.
(END) Dow Jones Newswires
December 09, 2015 15:42 ET (20:42 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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