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Slowing Consumption Puts Pressure on Natural Gas Prices

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Natural gas consumption

The EIA (U.S. Energy Information Administration) released its July 2015 STEO (Short-Term Energy Outlook) report on July 7, 2015. Government data showed that natural gas consumption was at 73.5 Bcf (billion cubic feet) per day in 2014. This is estimated to rise to 76.5 Bcf per day in 2015. It’s expected to slow down to 76.5 Bcf per day in 2016. The slowing natural gas consumption will put pressure on natural gas prices.

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Consumption will mainly be driven from electrical and industrial power plants in 2015. In contrast, the residential and commercial segments will be the laggards. The consumption from the power sector is estimated to rise to 12.9% in 2015 and fall to 2.7% in 2016. The lower price of natural gas will be the key driver for natural gas prices. This will lead to switching of coal power plants to natural gas electric power plants. The old power plants will retire. They will be substituted with cheaper and cleaner natural gas power plants. This renewed demand will also support natural gas prices. However, the widening gap between supply and demand will continue to put pressure on natural gas prices.

Lower natural gas prices will affect oil and gas exploration and production companies like Cimarex Energy (XEC), Exco Resources (XCO), and WPX Energy (WPX). Combined, they account for 3.17% of the Spider Oil and Gas ETF (XOP). These stocks also have a natural gas production mix that’s more than 43% of their total production.

Energy ETFs like the Energy Select Sector SPDR ETF (XLE) and the Spider Oil and Gas ETF (XOP) are also impacted by falling natural gas prices.

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