Natural Gas Struggles Despite Bullish Inventory Report Last Week
(Continued from Prior Part)
Natural gas consumption for power generation
As we saw in the previous part of this series, natural gas consumption for power or electricity generation increased by 8.2% in the week to June 12.
This increase was driven by an increase in consumption in the Northeast by 21% and in the Southeast by 14%. This more than offset declines in the Midwest of -2% and Texas of -3%, likely due to milder temperatures.
Higher natural gas consumption is bullish for natural gas prices (UNG), which is positive for gas producers like Chesapeake Energy (CHK), Noble Energy (NBL), Range Resources (RRC), and Antero Resources (AR). All these companies are components of the iShares U.S. Energy ETF (IYE) and make up 2.1% of the fund.
According to the EIA (U.S. Energy Information Administration), total consumption of natural gas for electric power generation for the month of March, the latest month for which the EIA has provided data, was ~717 bcf (billion cubic feet), or 23 bcf/d (billion cubic feet per day). It’s interesting to note that of the ~2,413 bcf delivered to end users in March, electricity generation accounted for ~30%, the highest of the deliveries. It was followed by industrial, which accounted for ~27.5%, and residential, which accounted for 26.5% of the deliveries.
Short-term trends in electricity consumption
According to the EIA’s Natural Gas Weekly Update, power consumption has been higher this spring compared to previous years, according to data from Bentek Energy. Much of this increase is due to weather-related factors.
The National Oceanic and Atmospheric Administration (or NOAA) has also projected warmer temperatures this summer compared to last year. US cooling degree days from June through August is projected to be 7.3% more than the same months in the previous year.
Higher temperatures will lead to higher cooling demand. This is bullish for natural gas prices.
Long-term trends in electricity consumption
According to the EIA’s weekly update, coal-fired power plants with a combined capacity of ~12 gigawatts are expected to retire this year. The EIA forecasts that coal-fired electricity generation’s share will average 35.6% in 2015 versus 38.7% in 2014. In contrast, the natural gas-fired electricity generation’s share will average 30.9% this year, up from 27.4% last year.
To read Market Realist’s analysis of recent commodity prices and their effects on energy companies, check out our Energy and Power page.
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