America's Gas Glut Heads for a Record After Winter Fails Bulls

U.S. natural gas inventories are on course to reach a record later this year. Blame it on lackluster winter heating demand.

Gas stockpiles in the lower 48 states will climb to an all-time high of 4.112 trillion cubic feet by the end of October, the U.S. Energy Information Administration said in its Short-Term Energy Outlook released Tuesday. The period from December through February was the warmest on record for the contiguous U.S., expanding a supply surplus.

“U.S. natural gas inventories just finished the winter heating season at their highest level ever, and are expected to be at a record high at the start of next winter heating season in November,” EIA Administrator Adam Sieminski said in an e-mailed statement Tuesday.

The inventory glut has ballooned over the past 10 weeks, sending gas futures to a 17-year low in March as production from shale formations floods storage caverns across the U.S. Excess supplies are poised to dog the market in the coming months as output heads for a sixth straight annual record, driven by the Marcellus basin in Appalachia.

Still, the shale boom may be starting to falter, EIA data show. Production from the seven biggest reservoirs is set to drop in May for a fifth straight month, led by declining output from the Eagle Ford play in Texas.

“Moving forward the big question is whether production will slow down this year,” Kent Bayazitoglu, an analyst at Gelber & Associates in Houston, said in a note to clients Tuesday. “So far, it is showing some early signs of cracking. ”

Before it's here, it's on the Bloomberg Terminal.