Natural gas inventories
The EIA (U.S Energy Information Administration) in its November STEO (Short-Term Energy Outlook) reported that natural gas inventories for the week ending October 30 reached 3,929 Bcf (billion cubic feet), or 10% more than the level at the same time in 2014. The EIA expects further inventory builds in November that can reach 4 trillion cubic feet in the coming weeks. Looking ahead to March 2016, the EIA projects inventories to end the winter at 1,862 Bcf, reflecting a slightly lower-than-average overall winter drawdown based on projections for warmer-than-normal temperatures.
Natural gas consumption
The EIA expects the averages of the total US natural gas consumption to rise by 3.2 Bcf per day in 2015 to 76.3 Bcf per day, compared to 73.1 Bcf per day in 2014. Further, the EIA expects that natural gas consumption in 2016 would be 76.8 Bcf per day.
Natural gas prices
The natural gas spot price at Henry Hub averaged $2.34 per MMBtu (British thermal units in millions) in October, or $0.32 per MMBtu less than September’s price. The EIA projected Henry Hub natural gas price averages of around $2.7 per MMBtu in 2015 and $3.0 per MMBtu in 2016.
Why are prices Low?
The massive Stockpile supported by strong production growth and expectations for warm winter temperatures added to natural gas prices, leading to three-year lows, as Henry Hub spot prices fell below $2 per MMBtu on October 30. That was the lowest price since April 2012.
Taking into account lower expected residential natural gas costs than in the previous winter, as well as conjectured hotter temperatures over several parts of the United States, the EIA expects residential heating expenditure for households to fall by 13%. This would occur through the utilization of normal gas as the essential space-heating fuel.
What is the impact?
Low natural gas prices led to a fall in the profit margins of US natural gas producers such as Gulfport Energy (GPOR), Memorial Resource Development (MRD), Comstock Resources (CRK), Cimarex Energy (XEC), Exco Energy (XCO), and Southwestern Energy (SWN).
The fall in the prices of natural gas also impacted ETFs like the iShares US Oil Equipment & Services ETF (IEZ), the PowerShares DB Energy ETF (DBE), and the VelocityShares 3X Inverse Natural ETN (DGAZ).