Back to top

Analyst Blog

The U.S. Energy Department's weekly inventory release showed a slightly lower-than-expected drop in natural gas supplies, as warmer-than-normal temperatures across the country have restricted the commodity’s requirement for power burn. In fact, gas stocks – currently 20.8% above the 5-year average and 19.6% higher than the same period last year – are at their highest level for this time of the year, reflecting low demand amid robust onshore output.

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 events.

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 plays like Anadarko Petroleum Corp. (APC - Analyst Report), Chesapeake Energy (CHK - Analyst Report), EnCana Corp. (ECA - Analyst Report), Devon Energy Corp. (DVN - Analyst Report), Nabors Industries (NBR - Analyst Report), Patterson-UTI Energy (PTEN - Analyst Report), Helmerich & Payne (HP - Analyst Report) and Halliburton Co. (HAL - Analyst Report).

Stockpiles held in underground storage in the lower 48 states fell by 87 billion cubic feet (Bcf) for the week ended January 13, 2012, just below the guidance range (of 88–92 Bcf draw) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc .

The decrease – the eighth consecutive withdrawal of the 2011-2012 winter heating season after stocks hit an all-time high in mid-November – is well below last year’s draw of 228 Bcf and the 5-year (2007–2011) average drawdown of 162 Bcf for the reported week. The current storage level – at 3.290 trillion cubic feet (Tcf) – is up 539 Bcf (19.6%) from last year and 566 Bcf (20.8%) over the five-year average.

A supply glut pressured natural gas futures for most of 2011, as production from dense rock formations (shale) – through novel techniques of horizontal drilling and hydraulic fracturing – remained robust, thereby overwhelming demand. As a matter of fact, natural gas prices have dropped approximately 50% from 2011 peak of about $5.00 per million Btu (MMBtu) in June to the current level of around $2.50 (referring to spot prices at the Henry Hub, the benchmark supply point in Louisiana).

To make matters worse, mild winter weather across most of the country through the first months of the season has curbed natural gas demand for heating, indicating a grossly oversupplied market that continues to pressure commodity prices in the backdrop of sustained strong production.

Please login to Zacks.com or register to post a comment.