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Demand Consensus Is Negative for Natural Gas Market

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Natural gas consumption 

Natural gas deliveries to residential and commercial segments declined for the week ending November 27, 2015, as compared with the previous week. Natural gas flow to industrial power plants also declined during the week. However, gas deliveries to electric power plants rose more than 30%, as compared to last year. The rising demand from power plants suggests electric power plants could be the key driver in the long term.

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EIA’s natural gas consumption outlook

The low price and clean fuel features of natural gas should boost natural gas consumption. The old coal-based power plants will retire and will be substituted by new natural gas power plants. As a result, the EIA (U.S. Energy Information Administration) estimates demand from industrial plants will increase in 2016. However, weather will be the key driver of demand.

In its STEO (Short-Term Energy Outlook) in November, the EIA reported that natural gas consumption could average around 76.3 Bcf per day in 2015 and 76.8 Bcf per day in 2016. On the other hand, natural gas production could hit 79.6 Bcf per day in 2015 and 80.20 Bcf per day in 2016. The increasing gap between supply and demand will negatively influence natural gas prices.

Low natural gas prices affect US natural gas producers like Exco Resources (XCO), Rex Energy (REXX), Range Resources (RRC), Gulfport Energy (GPOR), and Devon Energy (DVN). ETFs like the iShares US Oil & Gas Exploration & Production ETF (IEO) and the PowerShares DB Energy Fund (DBE) are also affected by oil and gas prices.

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