How Do US Natural Gas Inventories Impact Natural Gas Prices?



EIA’s natural gas inventories  

The EIA (U.S. Energy Information Administration) released its weekly natural gas inventory report on August 25, 2016. It reported that US natural gas inventories rose by 11 Bcf (billion cubic feet) to 3.35 trillion cubic feet from August 12–19, 2016.

Wall Street Journal survey estimated that US natural gas inventories might have risen by 19 Bcf (billion cubic feet) for the same period. The less-than-expected rise in US natural gas inventories supported natural gas prices on August 25, 2016. For more on natural gas prices, read Part 1 and Part 2 in this series.

Natural gas inventories rose by 52 Bcf for the same period in 2015. They rose by 22 Bcf in the week ending August 12, 2016.

Article continues below advertisement

US natural gas inventories by region 

The EIA divides the US into five storage regions:

  1. East
  2. Midwest
  3. Mountain
  4. Pacific
  5. South Central

Below are the movements in natural gas inventories for these regions from August 12–19, 2016:

  • The East region rose by 12 to 775 Bcf.
  • The Midwest region rose by 14 Bcf to 875 Bcf.
  • The Mountain region rose by 2 Bcf to 219 Bcf.
  • The Pacific region fell by 3 Bcf to 310 Bcf.
  • The South Central region fell by 14 Bcf to 1.1 Tcf. 

Impact of natural gas inventories 

For the week ending August 19, 2016, nationwide natural gas inventories were 11.7% more than their five-year average. They’re also 8.9% higher than they were in the same week in 2015.

The EIA estimates that US natural gas inventories would be ~4.04 trillion cubic feet by the end of October 2016—the beginning of the 2016–2017 heating season. It would be the highest level on record for this period of the year. High US natural gas inventories could pressure natural gas prices.

Lower natural gas prices have a negative impact on oil and gas producers’ profitability such as Range Resources (RRC), EXCO Resources (XCO), and Gulfport Energy (GPOR).

Volatility in oil and gas prices impact ETFs and ETNs such as the VelocityShares 3X Long Natural Gas ETN (UGAZ), the PowerShares DWA Energy Momentum ETF (PXI), the ProShares Ultra Bloomberg Crude Oil ETF (UCO), and the VelocityShares 3x Inverse Natural Gas ETN (DGAZ).

The US natural gas rig count also plays a vital role in driving natural gas prices. To learn more, read the next part of this series. 


More From Market Realist