The natural gas supply glut that dropped gas and electricity prices could soon turn into a supply issue and possible price spike as 23 straight weeks of below-average gas injections has left the US with far less gas than was expected going into the winter.

 

U.S. natural gas prices have surged to the highest level for more than 18 months as stocks continue to build more slowly than normal despite the warm weather.

The price for gas delivered to Henry Hub in March 2017 has risen by 11 percent since the end of September and is up by almost 44 percent since hitting a low back in February

The structure of futures prices has also shifted from a big contango to a small backwardation, with near-term contracts rising much further than prices for deferred deliveries

Futures markets are sending an urgent signal to gas producers about the need for more drilling and to electric utilities to run gas-fired plants for fewer hours this winter to conserve stocks.

Gas stocks typically rise between April and October and then draw down between November and March. But stocks have increased much more slowly than usual this year.

Stocks have risen by less than the five-year average every week since the start of May, a total of 23 consecutive weeks, according to data from the U.S. Energy Information Administration

The result is that the gas market has swung from a huge surplus at the end of the first quarter close to balance by the end of the third quarter and is on track for a deficit in 2017.

Stocks were 1,014 billion cubic feet above prior-year levels in late March but by the end of the first week in October the surplus had shrunk to just 28 billion cubic feet.

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