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What Are the Short-Term and Long-Term Trends for Natural Gas?

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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 increased ~1.7% in the week ended August 19 compared to the week ended August 12. Supply levels are 5% greater than they were in the corresponding week last year.

Total marketed production for May, the latest monthly data the EIA has provided, was ~78.3 Bcf (billion cubic feet) per day. In comparison, marketed production in April 2015 was 79.4 Bcf per day. It was 73.6 Bcf per day in May 2014. Marketed natural gas is the gas produced before associated liquids like 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 the 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 would hurt gas-producing companies like Noble Energy (NBL), Range Resources (RRC), and Antero Resources (AR). These companies make up ~2% of the Vanguard Energy ETF (VDE).

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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