The EIA inventory report shows that the price of natural gas will rise strongly

Date: 2017-09-14

       In recent weeks, America's electricity sector has burned more gas than ever. In the week to August 3, natural gas inventories unexpectedly fell by 6 billion cubic feet, the first time since 2006 that there has been a decline in summer gas inventories, according to the latest EIA report.

       Compared with crude oil consumption, natural gas consumption is more seasonal. In general, natural gas demand will rise during the winter due to heating. In other seasons, there is less demand; In spring and autumn, in particular, demand will fall sharply. Natural gas inventories will be higher in March and October and November, which will be consumed in the winter.

       So last week's decline in natural gas inventories was a real shock to the market, which also showed that the energy mix is changing. The EIA says there are two reasons for the result: a rise in consumption in the power sector and a fall in natural gas production.

       However, Mr Novak said in an interview that "he does not expect the oil market to recover by 2017, and the current low oil price cycle could end by the end of 2017."

       The United States has been working to replace coal with electricity with natural gas and renewable energy. Although this epoch-making transformation can take years to reach, its effects are already starting to bite. The number of natural gas power stations has increased over the past decade, and many are still under construction. Demand for natural gas has also climbed to new highs.

       Just a few weeks ago, on July 21, the U.S. burned 409 billion cubic feet of natural gas, a record high, according to the EIA report. At the end of July, the burning of power stations in the heat was over 40 billion cubic feet of gas in three days. Nine of the 10 days in the history of natural gas combustion occurred last month. The rest of the day took place in July 2015. In July, natural gas consumption increased by 2.7 billion cubic feet per day, to 36.1 billion cubic feet per day. That's 1.5 billion cubic feet/day more than the peak of 2012.

       In addition to the increase in demand, another reason for the decline in natural gas stocks is that the supply of natural gas has declined after years of increases. Since the beginning of 2015, natural gas producers have started to increase production, leading to high gas inventories in the winter of 2015, with gas prices falling to below $3 a million. The fall in prices has left the production of gas in many areas unprofitable and the manufacturers' production at a standstill.

       The result, no doubt, is that America's natural gas output will fall. America's most prolific marcellus shale, for example, produced 18.5bn cubic feet per day during its peak production in February. But then output fell by 3% in the region, and the EIA expects the region's production to fall another 26 million cubic feet/day in August. Demand for natural gas has increased, and supply cuts mean that gas inventories will be reduced this winter, and gas prices will be pushed up to high levels.