More Danger Lurks in Energy Industry -- Ahead of the Tape

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)

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