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With natural gas prices hitting the lowest level in nearly a decade -- as low as $1.51 in Canada and $1.98 US in New York -- many analysts and commentators say prices have more room to fall. The price of natural gas in New York has already fallen 34 percent this year.
"I don't see a bottom here in the near-term," Kevin Craney, senior commodities broker at RJO Futures, tells BNN.
Craney, like many others, says the industry is facing a standard economic problem: too much supply and too little demand.
"The big risk for the immediate term is, is there going to be a price shock -- where these caverns fill up so quickly that there's nowhere else to store this gas, so you're dumping it on the cash market. You could see the market collapse down to all time lows -- that's a real threat," he says.
And when could producers run out of storage capacity? Soon, some analysts warn. On Thursday, the U.S. Energy Information Administration said gas storage is currently 880 billion cubic feet higher than at the same time last year.
At those levels, the amount of natural gas in storage is already 55 percent higher than it was last year and 59 percent higher than the five-year average.
Tim Simard, managing director at NBC Commodities, tells BNN that producers are facing significantly less storage capacity then they had last year.
"So [producers] can't store the gas and demand isn't picking up fast enough to take up the gas that we have," says Simard.
He says producers only have a couple of options. They can stop drilling all together, try and shift their production to liquid natural gas, which sells at a higher prices, or they can shut in production at wells they have already drilled.
"But unfortunately [shutting in gas] creates a nice storage overhang…and once gas prices recover, that inventory comes back onto the market and undercuts a full price recovery," he says.
FRACKING CHANGES EVERYTHING
Those storage problems stem from a recent structural change that has taken place in the industry. A technique known as fracking -- a process where chemically-treated water is shot deep underground at rock and shale formations holding natural gas -- has opened up massive new reserves of the commodity.
"Certainly the fracking of gas has completely changed the entire industry," Craney says. He adds that the massive new reserves made possible by fracking have dramatically altered traditional metrics, such as ratio of oil to natural gas prices, used by many investors to predict future prices.
"That ratio [between oil and natural gas prices] is something you can't even pay attention to anymore, because structurally the natural gas market has changed so much with the introduction of fracking that you have an entirely new supply that was not available to you years ago," he says.
Just last decade natural gas import facilities were being built around the continent to handle what was expected to be strong demand for imports.
One solution to the glut of natural gas has been to turn North America into an exporter, with Asia and its roaring economies the most talked about destination. Natural gas prices outside of North America have touched as high as $16 US.
And while many analysts believe that terminals on the west coast of North America will eventually begin selling natural gas into overseas markets, time is working against producers.
"We may not have the gas around at that time if we stop putting capital into production," Glenn MacNeill, managing director at Bennington Investment Management, tells BNN. "The commodity disappears fairly quickly if you take capital away and put it in other places, which clearly the oil patch has been doing for the past year and will be doing even more so over the next year."
Many analysts say that all of these factors combined could trigger a further stretch of low prices.
"Even if we were close to a bottom in natural gas prices, the price recovery will likely be drawn-out and shallow," Bank of America analysts said recently in a note to clients. "Thus, we continue to stick to our view of an extended period of low natural gas prices."
Analysts at Goldman Sachs also recently predicted "sustained depressed prices" for natural gas.