The U.S. Energy Department's weekly inventory release showed a larger-than-expected drop in natural gas supplies, as imports from Canada declined. However, gas stocks still remain at elevated levels – 17.0% above the 5-year average and 13.4% higher than the same period last year – reflecting warmer-than-normal temperatures across the country that have restricted the commodity’s requirement for power burn 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), 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 95 billion cubic feet (Bcf) for the week ended January 6, 2012, above the guidance range (of 86–90 Bcf draw) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc (MHP).
The decrease – the seventh 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 137 Bcf and the 5-year (2007–2011) average drawdown of 128 Bcf for the reported week. The current storage level – at 3.377 trillion cubic feet (Tcf) – is up 398 Bcf (13.4%) from last year and 491 Bcf (17.0%) 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 45% from 2011 peak of about $5.00 per million Btu (MMBtu) in June to the current level of around $2.80 (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 winter 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.
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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