US Natural Gas Inventories Rise More than Expected: Prices React

(Continued from Prior Part)

According to data released by the EEI (Edison Electric Institute), the United States generated 87,622 gigawatt-hours of electricity during the week ended August 21. That’s 0.47% less than the 88,044 gigawatt-hours the country generated during the week ended August 14.

Also, as we saw in the last part of this series, natural gas demand from the power sector decreased in the week ending August 26. So it’s likely that we could see a decline in power generation for the week ended August 28 as well. Watch Market Realist for our report next week. On a year-over-year basis, the United States generated ~1% more power in the week ended August 21 compared to the corresponding week in 2014.

Since electricity generation companies depend mainly on coal or natural gas to generate electricity, increased electricity generation is likely to boost demand for coal and natural gas. This would be positive for both coal and natural gas producers.

However, given that natural gas is a cleaner fuel and that it’s abundant, it’s expected to take market share away from coal in the long term. This would be bullish for natural gas prices and natural gas producers such as Devon Energy (DVN), Southwestern Energy (SWN), Range Resources (RRC), and QEP Resources (QEP). These companies make up ~3% of the Vanguard Energy ETF (VDE).

According to the EIA (U.S. Energy Information Administration), a total of ~736 Bcf (billion cubic feet), or ~23.7 Bcf per day, of natural gas was consumed for the purpose of electrical power generation in May, the latest month for which data is available from the EIA. It’s interesting to note that, of the ~1,878 Bcf delivered to end users in May, electricity generation accounted for the most at ~39%.

Also, according to the EIA, coal consumption in 2015 is expected to fall 7%, fueled by lower natural gas prices and increased electricity generation based on renewable energy. The EIA forecasts that the share of coal-fired electricity in terms of overall power generation will average 35.6% in 2015, down from 38.7% in 2014. In contrast, natural gas should account for an average 31.2% of power generation this year, up from 27.4% last year.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - US Natural Gas Inventories Up More than Expected: Price Reaction
• Part 2 - Bearish Inventory Pulls Down Natural Gas Prices despite Weather
• Part 3 - UNG Fell but XOP Spiked in the Week Ending August 27