Natural gas storage declined | EIA review, April 8

Here’s a summary of the recent U.S natural gas EIA report for the week ending on April 1st:

Natural gas Storage

The underground natural gas storage (Billion Cubic Feet) decreased by 2.8%, i.e. a withdraw of 45 Bcf, as the total storage reached 1,579 billion cubic feet for all lower 48 states; the natural gas storage is 10 Bcf above the 5-year average.

This storage decline was mainly because of the withdrawal of 52 Bcf from Eastern Consuming Region natural gas storage.

The chart below presents the total natural gas storage (weekly figures) and Henry Hub spot price fluctuations during 2010-2011; it shows that during mid 2010 and up to now, there seems to be a strong relation between the two set of series.

 

Natural gas spot price (Henry Hub Natural Gas storage April 1

During 2011 (up to date), the weekly percent changes of these two data series have a 0.53 correlation, i.e. at 50% of the time as the storage levels dropped the price also declined, or in other words despite that the demand for natural gas was high, the natural gas prices continue to decline. Such a behavior might be construed as if natural gas behaves as a Giffen good; however, I don’t think this is the case, as it is more likely that there are additional reasons for this positive correlation, such as decline in costly imports, the expectations of prices to drop, the rise in exports as presented below, etc.

Consumption

U.S. natural gas consumption fell during last week by 16% compared to the previous week’s average consumption; the drop is mainly in the residential and commercial sectors’ consumption, which was 79% above the same week in 2010.

Production and Imports

The supply of natural gas moderately declined by 0.7% compared to last week’s supply, but was 4% higher than the same week last year.

The imports of natural gas from Canada to the US declined.

A more important note is that the US exports rose because of the tsunami in Japan:  according to BENTEK, LLC, LNG cargoes that were headed to Sempra’s Costa Azul liquefied natural gas import terminal on the coast of Baja California, Mexico, have been diverted to Japan. Due to this issue, the United States has increased its pipeline exports to Mexico.

This export of natural gas to Japan might explain the rise in natural gas prices.

The weather in the US was cooler by 5.9 degrees than the season normal for the week ending on March 31st, and 6.6 degrees the same week last year, as the U.S. temperatures reached a weekly average of 42.1 degrees. Nonetheless, there were regional differences: in the North Central Region showed the coldest weather. Obviously the region that suffered from colder than normal temperatures was the region that demanded more natural gas for heating.

Prices for the week ending April 1st

Natural gas spot price (Henry Hub) moderately decreased from beginning to end of the week by 0.32% and reached 4.32$/mmbtu on Friday; Its average daily change was -0.18%, but its weekly average was 1.5% above the previous week’s average price.

The Nymex Henry Hub Future Price (April delivery) also fell by 0.69% during the week, but its average price was 4.3% higher than last week’s average.

A detailed analysis about natural gas spot price for the week of April 1st is herein.

In total, natural gas prices rose, production remains unchanged or with moderate fluctuations, and imports, storage and consumption declined during the week ending on April 1st.

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