Natural Gas 12-Month Strip Hovering Near 14-Year Low

Jonathan Lee, Senior Energy Market Intelligence Manager at ENGIE Insight

The natural gas market has struggled to shoulder the weight of booming production. Throughout 2015, wholesale natural gas prices have steadily declined as demand for the fuel simply has not kept pace with supply growth. Even in the face of falling prices, production has not substantially slowed as drilling technology increases and reduces the cost of operations. According to the Energy Information Administration’s (EIA) monthly Drilling Productivity Report, average annual drilling production per natural gas rig in the Marcellus shale play increased by nearly 97 percent from 2012 to 2015. Nearly all of the other major production regions have experienced the same story.


In early 2012, the natural gas industry faced similar over-supply conditions. In response to the imbalance, the natural gas 12-month strip fell to its lowest level since February 7, 2002, before increased gas-fired electric generation soaked up excess supply and lifted prices higher. In recent weeks, overwhelmingly bearish fundamental conditions, including record high natural gas storage, moderate El Niño-inspired winter forecasts, and weak residential/commercial sector heating demand, pushed the natural gas 12-month strip below 2012 levels. On October 28th, the strip came within 9 cents of 2002’s low. In 2002 and 2012, the last two times the 12-month strip operated at these rare depths, price-recovery to $3.00/MMbtu occurred within 38 and 19 days, respectively. Today, the natural gas industry faces different fundamental challenges, but if history repeats itself, the opportunity to capitalize on these depressed prices could be relatively short-lived.

Back in 2012, some end-users wished they would have taken a longer-term approach to their deregulated energy purchasing decisions since prices moved steadily higher in the two years that followed. The natural gas market has once again presented similar (or even better) pricing. Decision-makers have a great opportunity to re-examine their energy portfolio, risk tolerance, and purchasing strategy to see how they can best take advantage of today’s historically low energy prices.

Learn more about what is impacting the near term wholesale energy markets, and hotspots of emerging technology cost trends that are actively providing additional energy options. Watch our Energy Outlook Webinar.

Sources: EIA: Petroleum Drilling; EIA: Natural Gas

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