Natural gas inventory
Every Thursday, the EIA (U.S. Energy Information Administration) publishes a natural gas inventory report for the previous week. The latest report is for the week ended July 24.
Throughout the year, natural gas is stored underground to save the fuel for peak demand during the winter. For the week ended July 24, inventory came in at 2,880 bcf (billion cubic feet) compared to 2,828 bcf a week earlier. The inventory figure was higher than 2,294 bcf the year before and the five-year average of 2,795 bcf.
The change implies an addition of 52 bcf to the underground inventory. The addition came in marginally lower than Wall Street analysts’ expectation of an addition of 55 bcf.
Why is this report important?
Commodity prices are a function of supply and demand. If demand rises while supply remains constant, prices rise because more customers are chasing each unit of a commodity. In contrast, if supply rises for a given level of demand, prices fall because the commodity is available in abundance.
Supply-and-demand trends reflect in inventory levels. So natural gas inventory data are useful to get a sense of natural gas prices.
Impact on coal
The natural gas inventory has risen over the past few weeks since injection season started. If the inventory is lower than expected, it indicates a lower-than-expected supply or higher-than-expected demand. This pushes natural gas prices up. A rise in natural gas prices is positive for thermal coal producers, as utilities (XLU) burn more coal when natural gas prices rise.
The fall in natural gas prices over the last few months has hurt coal producers (KOL)—especially those with operations in the East and the Midwest. These include Alliance Resource Partners (ARLP), Natural Resource Partners (NRP), and Peabody Energy (BTU).