The U.S. Energy Department's weekly inventory release showed a larger-than-expected build-up in natural gas supplies on the back of moderating consumption due to light weather load.
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 rose by 92 billion cubic feet (Bcf) for the week ended May 13, 2011, exceeding expectations (of 87–91 Bcf gain) by the analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc (MHP).
The increase – the sixth injection in as many weeks – is higher than last year’s build-up of 78 Bcf and the 5-year (2006–2010) average build of 91 Bcf for the reported week. The current storage level, at 1.919 trillion cubic feet (Tcf), is down 235 Bcf (10.9%) from last year’s level and is 36 Bcf (1.8%) below the five-year average.
A supply glut had pressured natural gas futures for most 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 $4.35, in between sinking to a low of $2.50 in September 2009.
However, natural gas stocks slid by approximately 2.261 Tcf during the period – November 5, 2010 to April 1, 2011 – on the back of favorable weather this winter and production freeze-offs in January and February. 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 the five-year average level.
But even with the improved demand/supply dynamics, natural gas prices continue to be under pressure following the end of winter's peak heating demand period. With mild spring weather limiting overall electricity demand, requirement of natural gas (for both heating and cooling) has been tepid against the backdrop of sustained strong production.
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