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Natural Gas Production Impacts Natural Gas Prices

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Natural gas production

The natural gas production from the lower 48 states of the US continued to rise compared to the previous week. Natural gas production from the lower 48 states was at 80.07 Bcf (billion cubic feet) for the week ending August 3, 2015. This is 3% more than the natural gas produced during the same period last year. Natural gas production from the dry production and well head production rose for the week ending August 3, 2015—compared to the previous week. The consensus of rising natural gas production, along with the rising inventories, might negatively impact natural gas.

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Demand drivers

Despite the rising production, the demand from electric power plants could support natural gas prices. Gas deliveries to electric power plants rose on a daily and yearly basis. Lower natural gas prices are also causing coal powered plants to switch to natural gas powered plants. The retiring coal plants are also substituted by natural gas powered electric power plants. This renewed demand could support natural gas prices.

In contrast, the residential and commercial segments saw a daily and weekly fall for the week ending August 3, 2015. The EIA (U.S. Energy Information Administration) also forecasts that natural gas flows to the residential and commercial segments might fall in 2015—compared to 2014. The slowing demand could negatively impact natural gas prices.

Upstream players like Range Resources (RRC), Gulfport Resources (GPOR), and Devon Energy (DVN) are positively impacted by rising natural gas prices. They account for 3.44% of the SPDR Oil and Gas ETF (XOP). These companies’ natural gas production mix is more than 40% of their total production. They also impact energy ETFs like XOP and the Energy Select Sector SPDR ETF (XLE).

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