Natural gas, which had risen recently due to a hot summer in America, has crashed on reports of record reserves in the US, increased supplies, weak demand and economic uncertainties

The US Energy Information Administration (EIA) recently reported that the US natural gas stocks rose by a total of 28 billion cubic feet (bcf). Working gas in storage was 3,217 bcf according to EIA estimates, which is above the five-year historical range. This represents a net increase of 28 bcf from the previous week. Stocks were 472 bcf higher than last year at this time and 407 bcf above the five-year average of 2,810 bcf. What more, the “proved reserves” of US oil and natural gas in 2010 rose by the highest amounts ever recorded since they began publishing proved reserves estimates in 1977, said EIA, on 1 August 2012.

However, demand was weak enough to absorb the excess supply as the Federal Reserve remained tight-lipped about future monetary and fiscal measures to boost supply. This failed to act as a counterbalance to increasing supply. The spot price of natural gas, on MCX,  tanked by 8% yesterday to Rs162.9 per mmBtu, while MCX August futures contract dipped 2.81% to Rs175.6 per mmBtu.

According to EIA, the net additions to proved reserves of crude oil plus lease condensate in 2010 totalled 2.9 billion barrels, surpassing the previous high of 1.8 billion barrels added in 2009 by 63%, according to the press statement. Net additions of wet natural gas in 2010 totalled 33.8 trillion cubic feet (tcf), nearly 5 tcf (17%) higher than the previous record of 28.8 tcf, also added in 2009. The data is for 2010 though since it takes time to evaluate “proven reserves”, is different from supply data released every week, by the same agency. The next release of “proven reserves” will be January 2013.
 

Earlier, natural gas prices had risen as more people, especially in America, draw more energy to cool themselves down in what is termed as a record summer, in terms of soaring temperatures. This had led to a drought and fears of a next food crisis in the agricultural commodities segment.
 

According to the energy agency, the markedly increase in reserves was due to advances in technologies as well as the expanding application of horizontal drilling and hydraulic fracturing in shale and other ‘tight’ (very low permeability) formations. Another important factor for each fuel—particularly oil—was a higher price used to assess economic viability relative to the prices used for the 2009 reporting year.