US natural gas storage adds 83 bcf, futures down sharply

06 May 2010 17:21  [Source: ICIS news]

HOUSTON (ICIS news)--The US natural gas industry added 83bn cubic feet (bcf) into storage for the second consecutive week, the Energy Information Administration (EIA) reported on Thursday, sending futures prices down sharply.

The injection raised stocks from 1,912 bcf to 1,995 bcf in the week ended 30 April, the EIA reported.

Storage levels were 5.1% above the same time last year and 18.8% above the five-year average of 1,680 bcf during the last week of April.

Analysts had predicted builds in the low 70s bcf to the high-80s bcf. The EIA figure was a little higher than the median expectation, sending futures downward.

An hour after the release of the EIA's report - at 11:31 New York time (16:31 GMT) - the June NYMEX contract was down 11.6 cents, trading at $3.875/MMBtu. Every contract month until November was trading at a loss of more than 11 cents.

Analysts highlighted a 1.5% increase in electricity production week over week during the EIA reporting period as reason for a possible injection figure in the 70s bcf. However, a 2.7% decline in electricity production kept some bearish on natural gas demand in that sector.

"Gas is currently getting injected at a (very bearish) 7.07 bcf/day pace," analyst Stephen Schork wrote in his energy newsletter The Schork Report based in Villanova, Pennsylvania.

"Thus, based on relative weak demand and the seasonal trend, we see this morning’s injection coming in around 85 bcf, in the middle of the seasonal norm and last year’s report, but above the consensus."

Addison Armstrong, director of research for Tradition Energy in Stamford, Connecticut, said the natural gas market was lagging with no major weather events impacting prices.

"Weather forecasts continue to provide little support for rising gas prices in the coming days," Armstrong wrote in an investor note, "with normal to below normal temperatures expected throughout most of the eastern half of the US in the coming weeks with the exception of some above average temperatures in the 6-10 day forecast period for areas stretching from Texas through the southeast coast of the US."

Martin King, analyst with FirstEnergy Capital in Calgary, explained that mild weather in March and April had storage levels 200-250 bcf higher than they should be.

"The weather has proven that it remains the biggest obstacle to getting this market back on its feet," King wrote in a research report.

The overhang of supply had kept prices below $4.00/MMBtu, while they could have been between $4.50-5.00/MMBtu if weather created more demand, King said.

The relatively low natural gas prices have been attractive for petrochemical crackers who could shift to a lighter, natural-gas feedstock in contrast to higher-priced crude oil-derived raw materials.

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By: Ryan Hickman
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