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 slightly from their summer highs. However, the build came in
well short of the five-year average addition for the week.
Despite the relatively soft supply build, the latest injection -
the 23rd in 2012 - has added to already bloated inventories. Gas
stocks - currently some 15% above the benchmark levels - are at
their highest point for 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.
While natural gas inventories are no doubt still at elevated
levels, injections since late April have been significantly lower
than the average for this time, cutting the surplus relative to
last year and the five-year average.
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 47 billion cubic feet (Bcf) for the week ended August 17, 2012,
higher than the guidance range (of 36-40 Bcf gain) as per the
analysts surveyed by Platts, the energy information arm of
McGraw-Hill Companies Inc.
However, the increase was lower than both last year's build of 66
Bcf and the five-year (2007-2011) average addition of 53 Bcf for
the reported week, thereby trimming the surplus relative to the
But in spite of the 'below-average' build during the past week, the
current storage level - at 3.308 trillion cubic feet (Tcf) - is
still up 423 Bcf (14.7%) from last year and 357 Bcf (12.1%) 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
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 (since the week ended April 27, to be
precise), 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 have convinced them to switch to the commodity from the more
With hot summer weather prevailing across the country over the past
two months, homes and businesses have been prompted to increase
electricity draws to run air conditioners.
ANADARKO PETROL (APC): Free Stock Analysis
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