Natural gas consumption
In the US, the weekly natural gas flows to the commercial and residential segments rose for the week ending September 22, 2015. In contrast, the weekly natural gas deliveries to electric power plants and industrial plants fell during the same period. Likewise, natural gas flows to electrical power plants rose on a YoY (year-over-year) basis.
The key drivers of natural gas consumption are electric power plants. Lower natural gas prices are leading to coal powered plants switching to natural gas powered plants. The retiring coal plants are also substituted by natural gas powered electric power plants. The low cost and clean fuel is leading to the renewed demand for natural gas. It could support natural gas prices.
In its September STEO (Short-Term Energy Outlook) report, the EIA (U.S. Energy Information Administration) stated that the natural gas consumption will average 76.52 Bcf (billion cubic feet) per day in 2015 and 76.6 Bcf per day in 2016. However, the natural gas consumption was at 73.5 Bcf per day in 2014. The consensus of slowing natural gas consumption could negatively influence natural gas prices in the oversupplied market.
The volatility in the natural gas market impacts upstream players like Antero Resources (AR), QEP Resources (QEP), and Chesapeake Energy (CHK). Combined, they account for 2.51% of the SPDR Oil and Gas ETF (XOP). These companies’ natural gas production mix is more than 50% of their total production.
ETFs like XOP and the Energy Select Sector SPDR ETF (XLE) are also impacted by the volatility in natural gas prices.