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EIA Reports Above-Average Natural Gas Build, Price Falls

Zacks

The U.S. Energy Department's weekly inventory release showed a larger-than-expected increase in natural gas supplies.

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: A Larger-than-Expected Rise in Storage

Stockpiles held in underground storage in the lower 48 states rose by 78 billion cubic feet (Bcf) for the week ended Jun 29, above the consensus market guidance of 76 Bcf gain.

Moreover, the injection was higher than both the 5-year (2013–2017) average addition of 70 Bcf for the reported week and last year’s build of 62 Bcf.

Following the storage report, natural gas prices lost around 2.3% last week to settle at $2.858 per MMBtu on Friday.

Despite last week’s larger-than-normal build, at 2.152 trillion cubic feet (Tcf), natural gas inventories are 493 Bcf (18.6%) under the five-year average and 717 Bcf (25%) below the year-ago figure.

Fundamentally speaking, total supply of natural gas averaged around 86.7 Bcf per day, up by 0.7% on a weekly basis due to increase in production. Meanwhile, daily consumption rose 1.2% to 75.1 Bcf on increase in demand triggered by higher natural gas usage for residential and commercial cooling requirements.

Positive Long-Term Thesis

Notwithstanding the temporary blips, 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 43% from 2015 to 2040. Countries in Asia and in the Middle East – led by China’s transition away from coal – will account for most of this increase.

Booming Exports

And it is the world’s largest gas producer U.S., which has emerged as one of the key players – competing with Russia and Australia among others – 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 attractive enough 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.

New pipelines to Mexico, together with large-scale liquefied gas export facilities like Cheniere Energy, Inc.’s Sabine Pass terminal and Dominion Energy Inc.’s D newly constructed Cove Point export plant, have meant that exports out of the U.S. are set for a quantum leap.

As per the Energy Department, gross liquefied natural gas exports are set to average 3 Bcf per day in 2018, increasing nearly 60% from last year. Apart from surging 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 Cabot Oil & Gas Corporation COG, Chesapeake Energy Corporation CHK, Southwestern Energy Company SWN, Gulfport Energy Corporation GPOR and Comstock Resources, Inc. CRK.

Want to Own a Natural Gas Stock Now?

If you are looking for a near term natural gas play, Eclipse Resources Corporation ECR may be an excellent selection. This company has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Eclipse Resources is engaged in the exploration and production of oil and natural gas properties in the Appalachian Basin, including the Utica and Marcellus Shales. The company’s production consists of 72% natural gas. In the last 60 days, four earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings has risen 20% in the same period.

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