Battling the Bulge: Natural Gas Stockpiles Hit Record Numbers as Recession Saps Industrial Demand

Natural gas inventories -- the weekly storage figure that also provides a glimpse of demand in the U.S. -- hit a record 3.589 trillion cubic feet, the Energy Information Administration reported today.

The government report showed stockpiles of natural gas for the week ended Sept. 25, surpassed the previous all-time high of 3.545 trillion set in November 2007. Natural gas inventories are about 15.5 percent above the 5-year average. Stockpiles often rise over warmer, summer months as demand wanes for gas used to heat homes and businesses. Utilities build up gas inventories during through October to prepare for peak winter demand.

But a few other forces are at work here.

The U.S. also is grappling with a recession this year that has caused the industrial sector from chemical plants and factories to aerospace to automakers to cut their gas usage back dramatically. And all the while gas production in the U.S. has continued unabated.

Industrial demand for gas dropped 12.4 percent in the first seven months of the year to 3.495 trillion cubic feet compared the same period in 2008, according to the EIA's natural gas monthly report released Sept. 29.

The stockpiles will be closely watched for another four weeks -- the typical buildup period to winter when supplies diminish as more gas is used for heating homes and businesses.

The important number to watch for is 3.9 trillion cubic feet -- or anything that gets too close to it. The number marks the peak U.S. storage capacity.

Folks looking for a silver lining around the bulging stockpiles may look to recent a manufacturing activity report.

The Institute for Supply Management report showed the manufacturing sector expanded in September for the second consecutive month, although at a slower pace than in the prior month. The index fell from 52.9 in August to 52.6 in September. A reading above 50 signals the manfuacturing economy is expanding.

Stimulus dollars allocated through the American Recovery and Reinvestment Act appear to be paying off. Thirty percent of respondents of the ISM survey indicated their industry will benefit from stimulus money.