Natural Gas Inventories Rose Unexpectedly: The Impact on Coal

Natural gas inventory

The natural gas inventory is a meaningful pointer to natural gas prices. In this series, let’s check the latest natural gas stockpile issued by the EIA (Energy Information Administration) and how it has impacted natural gas prices and coal prices

According to EIA estimates, the natural gas inventory for the week ended December 1, 2017, is 3,695 Bcf (billion cubic feet), just 2 Bcf above the 3,693 Bcf recorded for the week ended November 24. Wall Street analysts estimated that US natural gas inventories would drop 7 Bcf during the November 24–December 1 week. This is the biggest increase in weekly US natural gas inventories for this period of the year since 2001.

Natural Gas Inventories Rose Unexpectedly: The Impact on Coal

Natural gas stock fell 6.7% on a YoY (year-over-year) basis, and it was 3,959 Bcf during the equivalent week in 2016. The stockpile for the week ended December 1, 2017, was 36 Bcf below the 3,731 Bcf five-year average. It is also within the five-year historical range.

Impact

Usage of natural gas has risen in the US due to the winter season. US natural gas inventories were 3.0% and 1.0% below their five-year average for the week ending November 17, 2017, and December 1, 2017, respectively. The increase in US natural gas inventories above their five-year average would pressure natural gas prices.

Utility companies like Consolidated Edison (ED) and Southern Company (SO) may prefer coal over natural gas if the commodity’s price rises. Primary coal (KOL) companies like Arch Coal (ARCH), Westmoreland Coal Company (WLB), and Alliance Resource Partners (ARLP) could gain as a result.

Next, let’s see if the rise in natural gas inventories has impacted the commodity’s prices.