US natural gas falls below $2 for first time in 3 years

US natural gas traded below $2 per million British thermal units yesterday for the first time since April 2012 as a glut of the power-plant and heating fuel expands toward a record.

Unusually warm weather for this time of year is threatening to crimp gas demand just as caverns and reservoirs are filling up with supplies.

The front-month contract fell as much as 5.5%, extending Monday’s 9.8% drop.

“The plunge over the last couple of days I find to be a little unexpected; it does show there are a lot of worries about supply going into a mild winter,” said Gene McGillian, analyst at Tradition Energy in Stamford.

Producers are using hydraulic fracturing and horizontal drilling to pull so much gas out of US shale formations that stockpiles of the fuel are on track to reach a record 3.95 trillion cubic feet this month, based on a US Energy Information Administration forecast.

While stockpiles will continue to expand through the first two weeks of November as existing wells add to the glut, the price drop will discourage new drilling, Tim Evans, an energy analyst at Citi Futures Perspective in New York, has said.

Gas reaching $2 “definitely pressures the producers to cut back on investment, to cut back on drilling,” said Mr Evans.

“In terms of the big-picture, boom-or-bust cycle, we are in the bust phase.”