By Scott Haggett
CALGARY, Alberta (Reuters) - Natural gas prices, already near year lows, will fall further if North American storage facilities fill before summer's end, Canada's national energy regulator said on Thursday.
North America's mild winter, with temperatures 10 percent above normal, left natural gas storage at record levels, Canada's National Energy Board said.
Without a major heat wave to boost demand and drain supplies, or hurricanes to interrupt production, storage may be full by August and the market could be flooded with natural gas until the start of the winter heating season.
"What are the options to deal with this excess gas? The first might be to lower (liquefied natural gas) imports," said Karen Morton, gas analyst for the energy board. "But this is unlikely to solve the problem because imports are only about two billion cubic feet a day. The second is that gas producers may have to shut in some wells until demand rises."
North America can store about 3.8 trillion cubic feet of gas, Morton said. Supplies are built up during the summer, when demand is low, and released in winter when needed for heat and power generation. But this year the winter ended with stocks already high as mild temperatures reduced demand for the fuel and left little room for additional gas.
In its weekly report on gas in storage, the U.S. Energy Information Administration said on Thursday that gas stockpiles in the U.S. were 2.32 trillion cubic feet last week, 24 percent above last year and 41 percent higher than the five-year average.
That oversupply has pushed gas prices lower. From a peak of $15.38 per million British in December, gas for near-month delivery traded on the New York Mercantile Exchange has fallen 60 percent to a recent $6.14.
Canadian spot gas prices, which reached C$13.94 per gigajoule in December, fell below $5 last month for the first time since November, 2004.
Still, summer demand could rise if a heat-wave in the U.S. boosts the call for electricity generation to power air conditioners. As well, a surplus of gas could push prices lower still and make the fuel competitive with coal for power generation.
In its Summer Energy Outlook, the National Energy Board also said that Ontario, Canada's most populous province, could face a tight electricity market if there was a prolonged heat wave this summer.
However the board noted that there's been a 600 megawatt increase in electricity supplies available to the province since last year and the transmission network has also been upgraded, particularly to the Toronto region.
($1=$1.12 Canadian)
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