The U.S. Energy Department's weekly inventory release showed a larger-than-expected increase in natural gas supplies, as mild temperatures in parts of the country have restricted the commodity’s requirement for power burn. The injection – the ninth in 2012 – has added to already bloated inventories.
Gas stocks – currently some 40% above the benchmark five-year average levels – are at their highest point for this time of the year, reflecting low demand amid robust onshore output. This has constantly pressured spot prices that slipped to a 10-year low in April.
However, the most recent build – though above expectations – was still significantly lower than the average for this time, cutting the surplus relative to last year and the five-year average.
About the Weekly Natural Gas Storage Report
The Weekly Natural Gas Storage Report – brought out by the Energy Information Administration (EIA) every Thursday since 2002 – includes updates on natural gas market prices, the latest storage level estimates, recent weather data and other market activities or events.
The report provides an overview of the level of reserves and their movements, thereby helping investors 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 Corporation (APC), Chesapeake Energy (CHK), Encana Corporation (ECA) Devon Energy Corporation (DVN), Nabors Industries (NBR), Patterson-UTI Energy (PTEN), Helmerich & Payne (HP) and Halliburton Company (HAL).
Analysis of the Data
Stockpiles held in underground storage in the lower 48 states rose by 61 billion cubic feet (Bcf) for the week ended May 11, 2012, above the guidance range (of 52–56 Bcf gain) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc (MHP).
However, the increase – the ninth injection of 2012 – was lower than both last year’s build of 86 Bcf and the 5-year (2007–2011) average addition of 91 Bcf for the reported week, thereby trimming the surplus relative to the benchmarks.
But in spite of the ‘below-average’ build during the past week, the current storage level – at 2.667 trillion cubic feet (Tcf) – is still up 774 Bcf (40.9%) from last year and 773 Bcf (40.8%) over the five-year average.
Due to this huge natural gas surplus, inventories in underground storage started to climb since March – weeks earlier than the usual summer stock-building season of April through October. They have persistently exceeded the five-year average since late September last year and are likely to test the nation’s underground storage facilities by fall. In fact, the EIA foresees natural gas storage at record highs of 4.10 Tcf by October.