Natural Gas Storage Reports – What They Mean and How They Affect Pricing

Among other places, you may notice the mention of the natural gas injection or inventory “storage reports” if you receive our emails, or read the Energy News Flashes or Power New Energy Updates. Each Thursday (except for weeks that include Federal holidays) around 10:30 a.m. the Weekly Natural Gas Storage Report is posted on the U.S Energy Information Administration (EIA) website. The report provides gas inventory information of working gas volumes held in underground storage facilities at the national and regional levels. According to the EIA, there are about 120 entities that currently operate nearly 400 active underground storage facilities in the lower 48 states. Changes in these numbers primarily reflect net withdrawals or injections for the week and can have an impact on natural gas prices.

For the most part, gas is injected into storage during periods of low demand and withdrawn from storage during periods of peak demand. The markets monitor these figures because inventory data can indicate supply and demand trends. If the increase in natural gas inventories is more than expected, it implies either greater supply or weaker demand; likewise, if the increase in natural gas inventories is less than expected, it implies either weaker supply or greater demand. The EIA report shows the net change of overall natural gas inventory levels as well as the inventory levels in three regions for the current and previous week; East, West, and Producing region. It also provides inventories for the same period last year and the five-year average for historical comparison.

The exceptionally low temperatures that most of the U.S. experienced last winter led to record demand for natural gas. As the demand surged, a significant amount of inventory was depleted, leading to an increase in prices. As we attempt to restore storage inventories to their previous levels during the current injection season, there were eight straight weeks of 100 Bcf injections or greater which eased tension and pricing in the market. However, as of July 21st, natural gas inventories were still roughly 25.5% below the five year average and 22.2% lower than 2013.

Nonetheless, the outlook for natural gas storage appears positive. As inventory levels have been reported throughout the summer, there has been a trend of high production, strong injections and moderate demand for gas to generate electricity due to relatively cool temperatures for this time of year. In addition, as the U.S. shale boom continues, new wells come online and the supply of gas continues to increase. There are currently about 14 more weeks in the injection season, which traditionally occurs from the beginning of April through the end of October. Forecasters are hopeful that injections will continue to increase and in turn provide less volatility in the market.