The U.S. Energy Department's weekly inventory release showed a
larger-than-expected increase in natural gas supplies, reflecting
the commodity's tepid use for power generation, as temperatures
fell from their summer highs. Moreover, the build came in ahead of
the five-year average addition for the week.
The latest injection - the 24th in 2012 - has added to already
bloated inventories. Gas stocks - currently some 15% above the
benchmark levels - are at their highest point during this time of
the year, reflecting low demand amid robust onshore output. This
has constantly exerted pressure on spot prices that slipped to a
10-year low in April.
In addition to natural gas inventories being at elevated levels,
the most recent injection marks the first instance since late
April, when the supply build has exceeded the average for this
time, expanding the surplus relative to last year and the five-year
About the Weekly Natural Gas Storage Report
The Weekly Natural Gas Storage Report - brought out by the Energy
Information Administration (EIA) every Thursday since 2002 -
includes updates on natural gas market prices, the latest storage
level estimates, recent weather data and other market activities or
The report provides an overview of the level of reserves and their
movements, thereby helping investors understand the demand/supply
dynamics of natural gas.
It is an indicator of current gas prices and volatility that affect
businesses of natural gas-weighted companies and related support
Anadarko Petroleum Corporation
Devon Energy Corporation
Helmerich & Payne
Analysis of the Data
Stockpiles held in underground storage in the lower 48 states rose
by 66 billion cubic feet (Bcf) for the week ended August 24, 2012,
higher than the guidance range (of 58-60 Bcf gain) as per the
analysts surveyed by Platts, the energy information arm of
McGraw-Hill Companies Inc.
The increase was also higher than both last year's build of 60 Bcf
and the five-year (2007-2011) average addition of 62 Bcf for the
reported week, thereby widening the surplus relative to the
As a result of the 'above-average' build during the past week, the
current storage level - at 3.374 trillion cubic feet (Tcf) - is up
429 Bcf (14.6%) from the last year and 361 Bcf (12.0%) over the
five-year average. In fact, the latest inventory addition snaps a
string of smaller-than-average storage builds (since the week ended
April 27, to be precise).
Due to this huge natural gas surplus, inventories in underground
storage started to climb since March - weeks earlier than the usual
summer stock-building season of April through October. They have
persistently exceeded the five-year average since late September
last year and are likely to test the nation's underground storage
facilities by fall. In fact, the EIA foresees natural gas storage
at record highs of around 4.0 Tcf by October end.
A supply glut has pressured natural gas prices during the past year
or so, as production from dense rock formations (shale) - through
novel techniques of horizontal drilling and hydraulic fracturing -
remain robust, thereby overwhelming demand.
To make matters worse, near-record mild winter weather across most
of the country curbed natural gas demand for heating, leading to an
early beginning for the stock-building season. The grossly
oversupplied market continues to pressure commodity prices in the
backdrop of sustained strong production.
This prompted natural gas prices to dive approximately 63% from the
2011 peak of $4.92 per million Btu (MMBtu) in June to a 10-year low
of $1.82 per MMBtu during late April 2012 (referring to spot prices
at the Henry Hub, the benchmark supply point in Louisiana).
However, in the recent past (from the week ended April 27 to the
week ended August 17), repeated smaller-than-average storage builds
have rallied back prices toward $3.00 per MMBtu. This can be
attributed to strong demand by the utilities, as beaten down prices
of natural gas convinced them to switch to the commodity from the
more costly coal.
As hot summer weather prevailed across the country over the past
two months, homes and businesses were prompted to increase
electricity draws to run air conditioners.
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