Winter Is Over: Is It Time To Buy Natural Gas?

Winter is over in the United States, which has historically been a good time for investors to sell natural gas. This year, seasonably cold weather in parts of the country helped support natural gas demand, but producers are also pumping out unprecedented supply.

Record Consumption

The U.S. set a record for natural gas consumption in 2018, with demand jumping 10 percent to 81.2 billion cubic feet per day. The electric power sector was the leading demand driver, consuming 29.1 Bcf/d in 2018. Electric power alone accounted for 35 percent of total U.S. consumption. Commercial and industrial sector natural gas consumption also hit record highs last year.

While natural gas consumption is far from clean energy, it’s a much cleaner alternative to coal. Natural gas continues to displace coal as a source of electric power in the U.S.

The country added 14,500 megawatts of net natural gas capacity in 2018, while 13,000 MW of coal-fired capacity was taken offline.

LNG Vs. CNG

Natural gas used as fuel comes in two forms. Compressed natural gas (CNG) is gas stored under high pressure and typically delivered via pipeline. Since CNG is less dense than air, it tends to dissipate in the event of a leak, providing a safety advantage over gasoline.

Liquid natural gas (LNG) is gas stored at extremely cold temperatures and delivered via vehicles. LNG is extremely energy-dense compared to other petroleum fuels, providing an advantage for industries and nations that can afford it.

The nation of Bahrain in the Persian Gulf is set to open an LNG import terminal with an LNG floating storage unit starting in May. The terminal will reportedly have a capacity of 800 million cubic feet per day.

Despite the booming demand for natural gas, U.S. gas prices are down about 2.1 percent from a year ago.

New sources of natural gas are coming online every day. In February, Exxon Mobil Corporation XOM made the third-largest natural gas discovery in the past three years off the coast of Cyprus in the Mediterranean Sea. Exxon estimates the discovery at between 5 trillion and 8 trillion cubic feet of gas.

In the U.S. Permian Basin, oil producers are burning off enough waste natural gas to power the entire state of Texas. Oil producers use a process called “flaring” to burn off natural gas that is difficult to capture and store. In the fourth quarter of 2018, Permian producers burned off a record 533 million cubic feet per day.

Price Outlook

Looking ahead, Tudor, Pickering, Holt & Co analysts say weak global pricing, particularly in Asia, is working against natural gas investors at the moment.

“If pricing remains weak there is potential for extended maintenance to occur over the summer and/or a delayed ramp up of new projects scheduled to come online,” TPH said. “With LNG shouldering the bulk of U.S. demand growth this year, softness in the global market could prove to be a headwind for U.S. gas pricing.”

With headwinds ahead for the industry, the US NAT GAS FD L/UT LTD PARTN INT UNG could be under pressure in coming months. The UNG fund is already down 3.9 percent year to date.

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