EIA: Natural Gas Reserves Fall - Analyst Blog

The U.S. Energy Department's weekly inventory release showed a larger-than-expected drop in natural gas supplies, attributable to cold weather conditions across much of the country that pushed up the winter heating demand.

The ‘Weekly Natural Gas Storage Report' – as reported by the Energy Information Administration (“EIA”) every Thursday since 2002 – includes updates on natural gas market prices, latest storage level estimates, recent weather data, and other market activity or events.

The report provides an overview on the level of reserves and their movements, thereby helping investors to understand the demand/supply dynamics of natural gas. It is an indicator of current gas prices and volatility that affect businesses of natural gas-weighted companies and related support plays like Anadarko Petroleum Corp. (APC), Chesapeake Energy (CHK), EnCana Corp. (ECA), Devon Energy Corp. (DVN), Nabors Industries (NBR), Patterson-UTI Energy (PTEN), Helmerich & Payne (HP) and Halliburton Co. (HAL).

Stockpiles held in underground storage in the lower 48 states fell by 135 billion cubic feet (Bcf) for the week ended December 31, 2010, above expectations (of 127–131 Bcf withdrawal) by analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc (MHP). The latest decline – the eighth in as many weeks – compares with last year's draw of 149 Bcf and the 5-year (2005–2009) average draw of 79 Bcf for the reported week. The current storage level, at 3.097 trillion cubic feet (Tcf), is down 48 Bcf (1.5%) from the last year's level, but remains 190 Bcf (6.5%) above the five-year average.

A supply glut has pressured natural gas futures for much of 2010, as production from dense rock formations (shale) – through novel techniques of horizontal drilling and hydraulic fracturing – remain robust, thereby overwhelming demand. Storage amounts hit a record high of 3.840 Tcf in November, while gas prices during the year fell 21%. However, the recent surge in the commodity's demand (on account of cold weather) has brought down the 5-year surplus to 6.5%, from almost 10% in November.

 
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