The U.S. Energy Department’s weekly inventory release showed a smaller-than-expected drop in natural gas supplies, as a major draw in the East Region was partially offset by small injections in the West and Producing Regions.
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, latest storage level estimates, recent weather data and other market activity 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), Chesapeake Energy (CHK), EnCana Corp. (ECA), Devon Energy Corp. (DVN), Nabors Industries (NBR), Patterson-UTI Energy (PTEN), Helmerich & Payne (HP) and Halliburton Co. (HAL).
Stockpiles held in underground storage in the lower 48 states fell by 45 billion cubic feet (Bcf) for the week ended April 1, 2011, below expectations (of 49–53 Bcf withdrawal) by analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc (MHP).
The decline – the 20th in the last 21 weeks – compares with last year’s build of 29 Bcf and the 5-year (2006–2010) average build of 13 Bcf for the reported week. The current storage level, at 1.579 trillion cubic feet (Tcf), is down 86 Bcf (5.2%) from last year’s level but is 10 Bcf (0.6%) above the five-year average.
A supply glut had pressured natural gas futures for much of 2010, as production from dense rock formations (shale) – through novel techniques of horizontal drilling and hydraulic fracturing – remain robust, thereby overwhelming demand.
Storage amounts hit a record high of 3.840 Tcf in November, while gas prices during the year fell 21%. As a matter of fact, natural gas prices have dropped nearly 70% from a peak of about $13.60 per million Btu (MMBtu) to the current level of around $4.10, in between sinking to a low of $2.50 in September 2009.
The multi-week trend of a steady decline in supplies – which have slid by approximately 2.261 Tcf since November 5, 2010 – have been primarily fueled by cold weather conditions. This surge in the commodity’s demand has cut into the U.S. supply overhang, thereby erasing the hefty surplus over last year’s inventory level and significantly bringing down the excess over the five-year average level.
But even with the improved demand/supply dynamics, natural gas prices continue to be under pressure, as winter’s peak heating demand period comes to an end. With winter subsiding, requirement of natural gas for heating and power-plant fuel will reduce against the backdrop of strong production expectations.
ANADARKO PETROL (APC): Free Stock Analysis Report
CHESAPEAKE ENGY (CHK): Free Stock Analysis Report
DEVON ENERGY (DVN): Free Stock Analysis Report
ENCANA CORP (ECA): Free Stock Analysis Report
HALLIBURTON CO (HAL): Free Stock Analysis Report
HELMERICH&PAYNE (HP): Free Stock Analysis Report
MCGRAW-HILL COS (MHP): Free Stock Analysis Report
NABORS IND (NBR): Free Stock Analysis Report
PATTERSON-UTI (PTEN): Free Stock Analysis Report
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