Natural-gas prices are on the floor. Could they go negative?

The probability that wholesale gas prices will drop below $2 per million British thermal units, from today's almost $2.50, is rising. Gas hasn't closed below $2 since September 2009. Today's market shares one critical similarity to then: bulging gas inventories. This overhang of excess supply could crash prices even further this spring.

Like squirrels with nuts, we humans store gas during the summer and then deplete those inventories in the winter. But this winter has been mild and comes amid rising gas production. The latest official figures, released Thursday, show the U.S. has about three trillion cubic feet of stored gas, up 25% from this time last year and the five-year average.

Barring a sudden chill, we will enter summer with gas inventories well above normal. This is a problem because storage operators often need to cycle gas through a facility on a seasonal basis to maintain operational efficiency. Companies that leave gas in storage beyond their contracted time usually risk stiff financial penalties. Morgan Stanley forecasts there will be 2.2 trillion cubic feet of gas in storage at the end of March, which is traditionally when we start refilling inventories. However, that level is very close to the 2.3 trillion cubic feet level at which, Morgan Stanley estimates, storage operators start forcing clients to take gas out.

This carries big risks for prices. BofA Merrill Lynch points out that back in 2009, when capacity limits were again being tested, gas prices almost halved in the space of a month between early August and early September.