(EIA) Natural Gas 2011: An Unhappy Ending

The U.S. Energy Department’s weekly inventory release showed a slightly lower-than-expected drop in natural gas supplies, as warmer-than-normal temperatures across the country have restricted the commodity’s requirement for power burn. In fact, gas stocks – currently 15.2% above the 5-year average and 11.4% higher than the same period last year – are at their highest level for this time of the year, reflecting low demand 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 76 billion cubic feet (Bcf) for the week ended December 30, 2011, just below the guidance range (of 77–81 Bcf draw) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc (MHP).

The decrease – the sixth consecutive withdrawal of the 2011-2012 winter heating season after stocks hit an all-time high in mid-November – is significantly less than last year’s draw of 135 Bcf and the 5-year (2006–2010) average drawdown of 106 Bcf for the reported week. The current storage level – at 3.472 trillion cubic feet (Tcf) – is up 356 Bcf (11.4%) from last year and 458 Bcf (15.2%) 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 40% from 2011 peak of about $5.00 per million Btu (MMBtu) in June to the current level of around $3.00 (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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