The U.S. Energy Department's weekly inventory release showed a
larger-than-expected increase in natural gas supplies, as domestic
consumption - reflecting air conditioning demand - declined with
temperatures falling from their summer highs. Additionally,
production level remained strong.
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Gas stocks - currently some 10% above the benchmark average levels
- are at their highest point for this time of the year, reflecting
low demand amid robust onshore output. This has constantly
pressured spot prices that slipped to a 10-year low in April.
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 80 billion cubic feet (Bcf) for the week ended September 21,
2012, higher than the guided range (of 74-78 Bcf gain) as per the
analysts surveyed by Platts - the energy information arm of
McGraw-Hill Companies Inc.
The increase also exceeded the five-year (2007-2011) average
addition of 76 Bcf for the reported week but was below the last
year's build of 104 Bcf.
Following past week's build, the current storage level - at 3.576
trillion cubic feet (Tcf) - is up 296 Bcf (9.0%) from the last year
and 282 Bcf (8.6%) over the five-year average.
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
parts 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, repeated smaller-than-average storage
builds have rallied back prices above the $3.00 per MMBtu
threshold. 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.
But with temperatures falling from their summer highs and
consequent cooling demand set to wane, bigger storage builds are
likely to prevail in the near future.
Moreover, there are apprehensions that should natural gas stay over
the $3.00 per MMBtu barrier, utilities that took advantage of the
beaten down prices to switch to the commodity from the more costly
coal, could revert back to the latter. This demand loss may further
inflate natural gas inventories.