Natural gas prices changed direction and tumbled down during the last few days after they had increased during the past few months. There are some who think there will be a change in the warmer than normal weather in the near future that will bring consumption for natural gas down. The total demand declined last week mainly due to the fall in the power sector. The natural gas production and rig count continued to fall. The storage levels continue to rise but at a slower pace than in the past. I still suspect at the current rate the storage will peak around late October at 3,600.
Here is an analysis and short review on the latest changes in U.S natural gas market based on the EIA update for the week ending on July 27th:
Natural Gas Storage
The underground natural gas storage (Billion Cubic Feet) increased for the seventeenth consecutive week; last week the storage levels rose by only 0.82% or by 28 Bcf; the storage reached to 3,217 billion cubic feet for all lower 48 states; the current storage is 14.5% above the 5-year average, and is also 17.2% above the storage during the same week in 2011 – this is a drop in the storage levels that were nearly the 15%- 18% range a week earlier. During the parallel week of July 2011 the NG injection reached 44 Bcf and the five year average injection for the last week of July was 56 Bcf. Further, this is the fourteenth consecutive week in which the injections were lower than the injection during the same week in 2011. According to my crude estimates, if this trend will continue the storage level will peak around late October at 3,600 Bcf, which lower than the storage level in 2011.
The rise in storage was primarily because of a 30 Bcf injection from the Eastern consumption region storage.
In the following chart are the weekly changes in storage (and Henry Hub spot price between the years 2009 and 2012. The chart presents the recent rally in natural gas prices. All awhile the storage levels are rising at slower pace than in the past.
During last week the Henry Hub spot price hiked by 7.2% to a weekly average price of $3.13/mmbtu. On the other hand, the Henry Hub price was still $1.27/mmbtu below its price during the same week in 2011.
During last week the average U.S consumption, on a national level, fell by 2.04% (W-over-W). The consumption was 2.23% higher than last year.
The power sector led the fall with a 3.4% drop. Further, many other sectors declined on a weekly scale including the residential/commercial sector (decreased by 1.28%). The total demand for gas was down by 2.02% than the previous week levels but was 2.41% above the same week in 2011.
Production and Imports
Imports from Canada decreased during last week by 1.86%; they were 7.53% below the levels in 2011.
The gross production edged down last week by 0.09% but was 3.16% above the production level in 2011. As a result, the total supply of natural gas declined by 0.3% during last week.
According to the report the natural gas rotary rig count declined by 13; by the end of last week the number of rigs reached 505.
On a national level, the U.S temperatures were 2.6 degrees warmer than the 30-year normal and 1.9 degrees cooler than last year. The higher than normal weather is among the factors keeping the demand for natural gas strong.
For further reading: