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Natural Gas Supply Falls, but What’s the EIA Forecasting?

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Natural gas production

Based on data from Bentek Energy, an energy market analytics company, the EIA (U.S. Energy Information Administration) reported that total natural gas supply decreased 2% in the week ended August 12 compared to the week ended August 5. However, supply levels remain 4% greater than they were in the corresponding week last year.

Total marketed production for May, the latest month for which the EIA has data, was ~78.3 Bcf (billion cubic feet) per day. In comparison, marketed production in April 2015 was 79.4 Bcf/d. It was 73.6 Bcf/d in May 2014. Marketed natural gas is the gas produced before associated liquids including propane and butane are extracted. The removal of these liquids leaves dry natural gas.

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Forecast production trends for 2015

The EIA remains bullish about natural gas supply in 2015. The EIA’s August “Short-Term Energy Outlook” released on August 11 projects that total marketed natural gas production will grow 5.4% over 2014 to 78.72 Bcf per day in 2015 and by 1.8% more to 80.52 Bcf per day in 2016. It pegs total marketed natural gas production at 74.72 Bcf per day in 2014.

Continued production growth may pressure natural gas prices (UNG) if demand doesn’t match this supply. Weak prices are likely to hurt gas-producing companies including Noble Energy (NBL), Range Resources (RRC), and Antero Resources (AR). These companies make up 1.5% of the iShares U.S. Energy ETF (IYE).

Higher production, however, could benefit MLPs such as MarkWest Energy Partners (MWE), as it means more volume to transport. Having said that, if prices fall continuously, producers may respond by cutting production. This could be negative for some MLPs.

Natural gas inventories and prices are governed by both natural gas production and consumption trends. In the next part of this series, we’ll take a look at natural gas consumption trends.

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