Natural gas production rose until the end of the injection season



Natural gas production

Natural gas production is a key metric for investors. It helps determine thermal coal’s short-term outlook. Natural gas is used by the residential, commercial, industrial, transportation, and electric power segments. Residential and commercial users mainly use it for heating.

Natural gas is produced throughout the year, but demand is highest during the winter. As a result, excess natural gas—that’s produced during the spring, summer, and fall—is stored underground. The excess natural gas is used during the winter.

If production increases during non-winter months and demand is stable, more natural gas goes into underground storage. This keeps natural gas prices level during the winter months.

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Production continues to rise

The EIA (US Energy Information Administration) publishes natural gas production estimates on a monthly basis. The estimates are published with a lag. On December 31, the EIA published production figures for October 2014. According to the report, US natural gas production touched 2.24 trillion cubic feet, or tcf, in October 2014. This is up from 2.09 tcf in October 2013. The year-to-date, or YTD, production came in at 21.20 tcf—compared to 20.21 tcf during the same period last year.

Impact on coal

In the US, natural gas production is rising. However, milder winters resulted in subdued demand for natural gas for heating. This limited net withdrawals. Higher production and lower demand constrained natural gas prices this winter. Low natural gas prices are negative indicators for coal producers (KOL)—like Peabody Energy (BTU), Arch Coal (ACI), Alpha Natural Resources (ANR), and Cloud Peak Energy (CLD).

In the next part of this series, we’ll look at last week’s natural gas inventory report.


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