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Slowing Natural Gas Consumption Impacts Natural Gas Prices

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Sep. 10 2015, Updated 1:07 a.m. ET

Natural gas consumption 

The latest estimates suggest that natural gas deliveries to the residential and commercial segments in the US fell for the week ending September 4, 2015. Likewise, gas flows to electric power plants and industrial plants also saw a weekly fall during the same period. However, gas deliveries from electrical power plants rose from the previous year.

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Demand drivers

The demand from electric power plants could be the catalyst for natural gas prices in 2015. The long-term lower natural gas prices are leading to switching coal powered plants to natural gas powered plants. The retiring oil coal plants are also substituted by natural gas powered electric power plants. The renewed demand for natural gas could benefit natural gas prices.

The EIA (U.S. Energy Information Administration) estimates that the natural gas demand could average around 76.5 Bcf (billion cubic feet) per day in 2015 and 2016—compared to 73.5 Bcf per day in 2014. In contrast, natural gas production is estimated to rise by 4 Bcf per day to 78.52 Bcf per day in 2015 and by 1.8 Bcf per day to 80.52 Bcf per day in 2016, respectively.

The widening gap between supplies and demand will continue to put pressure on natural gas prices. The speculation of slowing demand from the residential and commercial segments will also add pressure to natural gas prices.

The roller coaster ride of natural gas prices might impact natural gas producers like QEP Resources (QEP), Antero Resources (AR), and Chesapeake Energy (CHK). They account for 2.51% of the SPDR Oil and Gas ETF (XOP). These stocks’ natural gas production mix is greater than 50% of their production portfolio.

Energy ETFs like the Energy Select Sector SPDR ETF (XLE) and the SPDR Oil and Gas ETF XOP are also affected by the volatility in natural gas prices.

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