US natural gas inventories
On Thursday, September 10, 2015, the EIA (U.S. Energy Information Administration) published its Natural Gas Weekly Update for the week ended September 4. The report showed that US natural gas inventories in storage increased 68 Bcf (billion cubic feet), causing inventories to rise to 3,261 Bcf that week. Analysts had been expecting a larger increase of 75 Bcf.
What this means for investors
When inventories rise less than the market expects, it’s usually bullish for natural gas prices (UNG). It either means that demand was more than expected or that supply was less than expected. On the news, natural gas prices settled in at ~1.2% higher compared to the previous close. In the next part of this series, we’ll take a detailed look at last week’s price movements.
Higher natural gas prices mean higher revenues for natural gas producers such as Chesapeake Energy (CHK), Southwestern Energy (SWN), QEP Resources (QEP), and Cabot Oil & Gas (COG). These companies earn more money when natural gas prices rise and less money when prices fall. All of these companies combined make up ~2% of the Vanguard Energy ETF (VDE).
Higher natural gas prices may also positively affect MLPs such as ONEOK Partners (OKS). Higher prices may persuade producers to produce more natural gas, which would mean higher volume for MLPs to transport.
The 68 Bcf net injection in the week ended September 4 compares to a net injection of 90 Bcf in the corresponding week last year and a five-year average net injection of 63 Bcf.
According to the EIA, from the week ended April 3, the beginning of the injection season, through the week ended September 4, net injections totaled 1,800 Bcf. In comparison, 1,955 Bcf were injected in the corresponding 23 weeks last year. The five-year average injection for the corresponding 23 weeks is 1,483 Bcf.
After the 68 Bcf build in the week ended September 4, natural gas inventories were ~17% higher than last year’s levels and 4.1% higher than the five-year average. Inventories have been outpacing the five-year average since the week ended May 29. This is bearish for natural gas prices.
The EIA’s September STEO (Short-Term Energy Outlook) report released on September 9 forecasts that inventories will total 3,840 Bcf at the end of the injection season in October. That would be 43 Bcf, or 1.1% higher than the five-year average.