SG:Natural Gas Report: Upside Limited Despite Summer Heat
Production surge will likely keep natural gas prices in established range for the medium term.
The Energy Information Administration reported that operators injected 60 billion cubic feet of natural gas into storage in the week ending July 15, 2011. That was close to estimates that were calling for an injection between 59 bcf and 62 bcf, but above last year’s build of 51 bcf and the five-year average of 53 bcf.
Thus, the inventory deficit against last year and the five-year average fell for the fifth straight week to 220 bcf and 81 bcf, respectively. These injections into storage are part of the yearly cycle of natural gas supply and demand, and insufficient supplies going into storage now can mean shortages in the future during peak demand.
After the report, natural gas prices fell and were last trading near $4.40/mmbtu. Prices for the fuel have been trapped in a relatively narrow range over the last several months, which can be seen from the chart below.
The weather last week was warm, but seasonal. Cooling degree days came in at 86, the same as last week and close to last year’s 89 CDDs in the same period. There were 90,273 GWh of electricity generated during the week, up 4.1 percent week-over-week, but down 2.1 percent year-over-year, according to the Edison Electric Institute.
Canadian storage rose by 12 bcf last week to 438 bcf. That’s more than the 8 bcf injection last year and equal to the five-year average of 12 bcf. Overall, Canadian storage is 77 bcf under last year and 97 bcf below the five-year average.
Putting U.S. and Canadian inventory figures together, total North American storage is now down 297 bcf year-over-year and 177 bcf below the five-year average. The year-over-year deficit has been steadily declining and now is now the smallest since April.
Surging production of natural gas has more than offset this summer’s heat. Output in April was up a whopping 4.6 bcf/d, or 7.1 percent, over last year. Prices should stay muted as long as growth stays this strong.
Friday brings the latest rig-count data from Baker Hughes. Last week, the number of rigs drilling for natural gas in the United States rose by 12. Though the count is down from last year, clearly, that has not had any impact in bringing down production growth. Consistent increases in rig productivity have allowed producers to do more with less.
