Houston (Platts)--13Apr2012/322 pm EDT/1922 GMT

With US and Canadian gas stockpiles entering injection season at record highs, there is little storage operators can do to prevent levels from testing facility limits, except to hope for production cuts or significant summer utility demand, sources said.

The Energy Information Administration Thursday put US gas in storage at 2.487 Tcf for the week ended April 6. Traditionally, the industry has not seen those levels reached until June or July, a Platts analysis of EIA data showed.

Canadian storage is in the same boat. As of April 6, storage stood at 492.5 Bcf, nearly 70% full, Enerdata reported. Storage levels there similarly tend to hit those levels in July or August, the data show.

Given tight storage capacity, forecasts of a mild summer across much of the US and the unwillingness of most producers to cut production, early shut-ins of some storage fields is likely, sources said.

While shut-ins are not unusual, they tend to happen later in the injection season, usually in September or October. This year, however, sources expect some fields begin running out of space as early as July or August.

Operationally speaking, storage operators have few options.

Full storage "is going to be a huge issue and there's very little I can do," said Inergy Midstream's account manager for Northeast storage Michelle Brocklesby. "We're completely subscribed at all of our facilities, so we don't have a lot of room to play."

The facilities overseen by Brocklesby include the 26.25-Bcf Stagecoach, the 6.2-Bcf Steuben, the 7-Bcf Thomas Corners and the 1.5-Bcf Seneca Lake, all of which are in New York. The last three facilities, Brocklesby said, are already full, while Stagecoach is at 43%.

But there are a few tricks operators could employ.

"They can add horsepower, rerate the pressure of the facility to allow for more supplies," said Barclays Capital analyst Michael Zenker. "That still doesn't give them a lot of wiggle room, though."

Some have capacity expansions going on line this year that could buy them some time and space.

AGL Resources, for instance, is adding 12 Bcf to its Golden Triangle facility in Beaumont, Texas, in the second half of the year, and is bringing online an 11-Bcf facility in California.

"Our expansions will help alleviate the issue somewhat," said Steve Cittadine, AGL's president of storage and fuels. "That will be a positive. It's a good time to be bringing these online with the constraints we expect to see."

Golden Triangle is about 81% full, data from Platts unit Bentek Energy shows.

Overall, some 63.6 Bcf of additional storage will be coming online in the producing region this year and 30 Bcf added in the West. These constitute about a 1.4% increase in total storage design capacity. Eastern expansions, however, are only set to come into service in 2014 and there are no expansions planned this year in Canada.

One of the market's traditional safety valves -- moving gas into Western and Eastern Canadian storage fields -- is unlikely to work this season. Eastern Canadian storage fields are about 51% full, while those in the West are 77.6% full.

What players are now hoping for are large production cuts.

At least 10 producers have announced production curtailments, either through dropping rigs, leaving wells uncompleted or reducing their capital budgets. These curtailments, analysts said, amount to about 1.6 Bcf/d at most.

"We need something like 3 Bcf/d of cuts if we want to get storage to end injection season around last year's levels," Societe Generale analyst Laurent Key said.

Sources noted between joint-venture funding of drilling activity and supermajors' more longer-dated view of the markets' cyclical nature, producers are not likely to pull back significantly.

What all sources agreed on was that prices -- futures, forward and spot -- will face tremendous downward pressure in the coming months.

Already, western Canadian storage hub AECO-Alberta hit a 10-year spot low on March 29, according to Platts price data. The NYMEX prompt-month contract hit a 10-year low Wednesday.

In forward basis markets, the combination of explosive supply growth and bursting storage is most apparent in Columbia Gas, Appalachia, which is absorbing the deluge of Marcellus Shale supplies.

Columbia's balance-of-summer package was assessed by Platts Thursday at plus 0.75 cents. At the same time a year ago and in 2010, the corresponding package was assessed at plus 5.75 cents and plus 4.25 cents, respectively.

--Elizabeth Bassett, Elizabeth_bassett@platts.com --Samantha Santa Maria, Samantha_santa_maria@platts.com