EIA Reports Season's First Natural Gas Storage Withdrawal

The U.S. Energy Department's weekly inventory release showed a larger-than-expected decrease in natural gas supplies – the season’s first withdrawal. However, unfavorable weather forecasts and strength in the commodity’s production, resulted in prices dropping.

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.

Analysis of the Data: Season’s First Decline

Stockpiles held in underground storage in the lower 48 states fell by 18 billion cubic feet (Bcf) for the week ended Nov 10, above the guidance (of 14 Bcf decline) as per the analysts surveyed by S&P Global Platts, a leading independent commodities and energy data provider.

The past week’s decline represents the first withdrawal of the 2017-2018 winter heating season. This compares with last year’s addition of 34 Bcf and the 5-year (2012-2016) average net injection of 12 Bcf for the reported week.

Following the official start to the draw season, the current storage level now stands at 3.772 trillion cubic feet (Tcf) - 101 Bcf (2.6%) under the five-year average and 271 Bcf (46.7) below the year-ago figure.

Fundamentally speaking, total supply of natural gas averaged around 82.2 Bcf per day, up 1.5% on a weekly basis due to higher production and imports. Meanwhile, daily natural gas consumption increased 12.8% to 89.6 Bcf. The sharp acceleration in demand was triggered by a 40.6% surge in residential/commercial consumption on the back of cooler temperatures.

Futures End Down Despite Bullish EIA Data

Shrugging off EIA’s latest commentary, natural gas prices lost 3.6% last week to settle at $3.097 per MMBtu on Friday as investors chose to concentrate on warmer temperature predictions (translating into moderate heating gas demand) over the next few days. Prices were further dented by the continued strength in dry gas production, which are hovering near record levels.

Positive Long-Term Thesis

Despite occasional hiccups, the fundamentals of natural gas continue to be favorable in the long run, considering the secular shift to the cleaner burning fuel for power generation globally and in the Asia-Pacific region in particular.

The EIA predicts global demand for the commodity to grow from 340 Bcf per day in 2015 to 485 Bcf per day by 2040. Countries in Asia and in the Middle East – led by China’s transition away from coal – will account for most of this increase.

And it will be the world’s largest gas producer U.S., which will step up to meet this soaring demand. With domestic prices struggling to break the $3 per million Btu threshold, U.S. natural gas companies see a big opportunity in selling cheap U.S. production at higher prices to rest of the world.

In fact, more than 50% of the domestic volume growth in the near future will be used for export in the form of liquefied natural gas (LNG). As per Paris-based International Energy Agency (IEA), the United States will vie with Australia and Qatar as the top LNG exporter by 2022.

Apart from the growing use of LNG and booming exports, the replacement of coal-fired power plants and higher consumption from industrial projects will likely ensure strong natural gas demand with price eventually settling well above $3.

The perceived price strength augurs well for natural gas-heavy upstream companies like Rice Energy Inc. RICE, Chesapeake Energy Corp. (NYSE:CHK) , Southwestern Energy Co. (NYSE:SWN) , WPX Energy Inc. (NYSE:WPX) , Cabot Oil & Gas Corp. (NYSE:COG) and EQT Corp. (NYSE:EQT) .

Want to Own a Natural Gas Stock Now?

If you are looking for a near term natural gas play, Rex Energy Corp. (NASDAQ:REXX) may be a good selection. This company actually has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Headquartered in State College, PA, Rex Energy is an independent explorer and producer with primary focus on the Marcellus and Utica Shale. The company has an excellent earnings surprise history. It surpassed estimates in three of the last four quarters at an average rate of 11.3%.

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