11/14/2012

Natural Gas Report: Inventories Hit Record, Wiping Out Deficit

At one point in May, North American natural gas inventories were 401 bcf below the year-ago level. That entire deficit has now been wiped out.

The Energy Informational Administration (EIA) reported that storage operators injected 19 billion cubic feet of natural gas into storage in the week ending Nov. 11. That was below estimates that were calling for an injection near 25 bcf, but above last year’s withdrawal of 5 bcf and the five-year average injection of 7 bcf.

These injections into storage are part of the yearly cycle of natural gas supply and demand, and insufficient natural gas going into storage now can mean shortages in the future during peak demand.

After last week’s injection, the inventories reached 3,850 bcf — a record high, and 15 bcf above the year-ago level. As can be seen from the chart below, recent injections have been consistently and significantly above the five-year average, indicating a very oversupplied market.

After the report, natural gas prices rose to last trade around $3.38/mmbtu, but remain at extremely depressed levels.

Canadian natural gas inventories rose by 6 bcf to 682 bcf. The injection was larger than last year’s build of 4 bcf and the five-year average build of 4 bcf. In turn, the surplus over last year rose to 4 bcf, while the surplus over the five-year average rose to 80 bcf.

Combining U.S. and Canadian storage, total North American inventories are now 19 bcf above the year-ago level and 301 bcf above the five-year average.

The weather last week was close to seasonal norms, with 118 heating degree days in the U.S.

There was 70,906 GWh of electricity generated last week, up 0.77 percent week-over-week and up 1.24 percent year-over-year, according to the Edison Electric Institute.

Friday brings the latest rig count data from Baker Hughes. Last week, the number of rigs drilling for natural gas in the United States fell by 30 to 877, after having fallen 27 rigs the week before that. Rigs are now down 59 from this year’s peak of 936 set in October.

Though U.S. production hit a record 69.66 bcf/d in August, it hasn’t increased much since April’s 69.26 bcf/d level. It’s too early to say whether output growth is flattening out. Low prices are certainly discouraging drilling and producers seemingly are ratcheting back their activity as evidenced by the drop in the rig count. However, it’s much too early to say whether any of this will have a material impact in bringing down natural gas production growth. Year-over-year, output is still up a whopping 4.29 bcf/d, or 6.6 percent.

The latest weather forecasts are bearish, with warmer-than-normal temperatures forecast for the next couple of weeks. Even so, at some point, natural gas prices should see a seasonal uptick, but upside will be limited until production growth slows significantly.

NOAA’s 6-10 Day Weather Outlook:

NOAA’s 8-14 Day Weather Outlook:

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