HardAssetsInvestor

Written by Sumit Roy  |

December 15, 2011

Natural Gas Report: Inventory Surplus Surges To 540 bcf, Fundamentals Remain Extremely Bearish

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Natural gas prices are trading at the lowest levels in years thanks to surging production and elevated inventory levels.

The Energy Informational Administration (EIA) reported that storage operators withdrew 102 billion cubic feet of natural gas from storage in the week ending Dec. 22, 2011. That was above estimates that were calling for a withdrawal between 94 bcf and 98 bcf, but below last year’s withdrawal of 164 bcf and the five-year average withdrawal of 137 bcf.

After last week’s withdrawal, the inventories now total 3,729 bcf — the highest level ever recorded at this time of the year. As can be seen from the chart below, recent withdrawals have been consistently and significantly below the five-year average, indicating a very oversupplied market.

U.S. inventories are now 177 bcf above the year-ago level and 404 bcf above the five-year average (calculated using slightly different methodology than the EIA).

After the report, natural gas prices were little changed near $3.14/mmbtu — near the lowest level since September 2009. Prices haven’t been this low during December since 2002.

Canadian natural gas inventories fell by 8 bcf to 679 bcf. The withdrawal was much less than last year’s draw of 36 bcf and the five-year average draw of 24 bcf. In turn, the surplus over last year rose to 69 bcf, while the surplus over the five-year average rose to 136 bcf.

Combining U.S. and Canadian storage, total North American inventories are now 246 bcf above the year-ago level and 540 bcf above the five-year average.

The weather last week was warmer than seasonal norms, with 174 heating degree days in the U.S.

Overall, 78,513 GWh of electricity was generated last week, up 6.54 percent week-over-week, but down 4.37 percent year-over-year, according to the Edison Electric Institute.