Natural gas inventory
Commodity prices are a function of demand and supply. If demand increases while supply remains constant, the price increases because more customers are chasing each unit of the commodity. In contrast, if supply increases for a given level of demand, the price drops because the commodity is available in abundance.
The EIA (U.S. Energy Information Administration) publishes a weekly natural gas inventory and withdrawal report every Thursday. The report is for the week ending the previous Friday.
Natural gas inventory in line with expectations
Throughout the year, natural gas is stored underground in order to save the fuel for the peak demand during the winter. For the week ending February 13, the inventory came in at 2,157 billion cubic feet, or Bcf. This was in line with analyst expectations.
In recent weeks, cooler weather resulted in high draw-downs. In spite of high draw-downs in recent weeks, the inventory level is higher than 1,479 Bcf, where it was at the same time last year. Note that the inventory was affected by unusually cooler weather last winter. The inventory remains higher than the five-year average of 2,099 bcf.
Impact on coal
Despite the higher draw-downs in recent weeks resulting in lower leverage, natural gas prices remain weak at around $3 per million metric British thermal units, or MMBtu. Weak natural gas prices aren’t a good sign for coal producers (KOL), especially the ones with operations in the east and Midwest—including Alpha Natural Resources (ANR), Arch Coal (ACI), and Peabody Energy (BTU). You can access all major coal companies through the iShares Russell 3000 ETF (IWV).
With natural gas prices around $3 per MMBtu, even PRB (Powder River Basin) producers such as Cloud Peak Energy (CLD) are feeling the heat. PRB is the lowest-cost coal-producing region in the US. Due to the lower cost, PRB coal has a better chance to compete against the shale gas revolution.