The Oil Drum

It should be an interesting year. We should be able to tell by mid-summer if Saudi Arabian oil production has peaked, because inventory draw-downs cannot continue for long and they will likely be called on to increase their production to meet rising demand. In the same way, we should learn the truth about our natural gas production situation.

Natural gas in storage last week was at 1516 Bcf, 11.6% above the five year average, which would be 1358 Bcf. This comfortable number is still well below last year's figure of 1840 Bcf. If Canadian exports to the U.S. continue to fall by 5%, that would be a drop of 18 Bcf per month. If U.S. production continues to fall by 2%, that will cost us another 40 Bcf per month. This means that in less than three months we are likely to drop down to the five year average, and by the beginning of the winter we will drop below the bottom of the average range, which would be a bad thing. The decline figures of 5% for Canadian exports and 2% for U.S. production are not especially high estimates, as previous TOD posts have postulated U.S. production declines in 2007 as high as 7%.

With winter ending, the natural gas storage numbers will not be pushed around as much by the weather, and we should be able to track the supply and demand situation fairly closely. There will be a clear call for more North American natural gas this year. We will see if it can be delivered.