US electricity generation
US households use 49% of the natural gas for heating needs. The EIA (U.S. Energy Information Administration) estimates that 31% of the natural gas will be used for electric power generation in 2015. The lower cost of natural gas and clean energy will drive the demand for natural gas in the short and long term. The old coal power plants would be substituted with new gas-based electric power plants. However, winter weather will play a crucial role in driving the residential and commercial needs for natural gas. The EIA estimates that the natural gas demand will be less this winter compared to last winter. The weather will also lead to the rise or fall in the inventory.
EIA inventory report
Last week, the EIA (U.S. Energy Information Administration) published its natural gas in storage report on October 29, 2015. It reported that the natural gas stockpile rose by 63 Bcf (billion cubic feet) to 3,877 Bcf for the week ending October 23, 2015. The current natural gas stocks are 11.8% more than the level of 3,468 Bcf in 2014. The stocks are also 4.1% more than the five-year seasonal average of 3,724 Bcf.
The rising inventory and mild winter will drag natural gas prices lower. In turn, this will impact natural gas producers’ margins like Rice Energy (RICE), Range Resources (RRC), Gulfport Energy (GPOR), and Memorial Resource Development (MRD). These stocks’ natural gas production mixes are more than 40% of their total production. ETFs like the PowerShares DB Energy ETF (DBE) and the PowerShares DWA Energy Momentum (PXI) are also impacted by the ups and downs in the oil and gas market.