Natural Gas Storage at New High

Source: Zacks Equity Research  (11/21/11)

"The current storage level—at 3.85 trillion cubic feet (Tcf)—is at an all-time high, eclipsing the previous record of 3.84 Tcf reached last November."

The U.S. Energy Department's weekly inventory release showed a lower-than-expected rise in natural gas supplies. However, the increase in storage was still well above the 5-year average rate, as mild weather continues to restrict the commodity's demand for power burn amid robust production. In fact, the most recent inventory build has taken the storage level to a new all-time high.

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 rose by 19 billion cubic feet (Bcf) for the week ended November 11, 2011, below the guidance range (of 23–27 Bcf gain) of the analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc (MHP - Analyst Report).

The increase—the thirty-second injection in as many weeks—is larger than last year's draw of 1 Bcf and the 5-year (2006–2010) average addition of 10 Bcf for the reported week. The current storage level—at 3.85 trillion cubic feet (Tcf)—is at an all-time high, eclipsing the previous record of 3.84 Tcf reached last November. It is up 14 Bcf (0.4%) from last year and has crept up by 224 Bcf (6.2%) over the five-year average.

A supply glut has pressured natural gas futures for most of 2011, as production from dense rock formations (shale)—through novel techniques of horizontal drilling and hydraulic fracturing—remain robust, thereby overwhelming demand. As a matter of fact, natural gas prices have dropped approximately 35% from this year's peak of about $5.00 per million Btu (MMBtu) in June to the current level of around $3.30 (referring to spot prices at the Henry Hub, the benchmark supply point in Louisiana).

Of late, mild autumn weather has driven a string of above-average inventory builds, indicating a grossly oversupplied market. Natural gas demand is currently going through a lean period—with the end of the peak cooling loads for summer and ahead of the winter heating season, coupled with tepid industrial demand in a weak economy. As a result, commodity prices continue to be under pressure against the backdrop of sustained strong production.

-Zacks.com