See natural gas stocks build-up post mid 2013: Nirmal Bang

Natural gas prices have remained under pressure and corrected almost 23% in the first quarter of 2012. Lower demand, unfavourable weather conditions across the US and heavy surplus available in the market depressed gas prices further. The heating demand fell sharply as temperatures remained above normal in major consuming nations in the US.

Inventories rose by 12.3% compared to the five year average and stood at 3.29 tcf near an all-time high in the month of December '12. The main reason behind the heavy surplus of natural gas is the boom in the production of shale oil and gas in the US.

The introduction of new techniques such as horizontal drilling and hydraulic fracturing have caused a rapid rise in production numbers of shale oil and gas in the US.

Natural gas prices touched the bottom of USD1.90/mmbtu on 20th Apr '12 due to rapid shale gas production in the country and currently stand at around USD3.30/mmbtu.

As per Energy Intelligence Administration (EIA), the global demand for natural gas rose 4.5% in the year 2012, driven by higher consumption by the United States of America, the top consumer of the commodity and strong demand growth in Asia. The overall demand for natural gas in the US (residential, commercial, industrial and electrical demand) rose by almost 5% in the year 2012.

However, the US consumption growth is expected to slow down in the year 2013 as well as 2014. Demand is expected to show a negative growth of around 0.4% in the year 2013 on a year-on-year (y-o-y) basis.

The global natural gas output is rising continuously on the back of robust growth in production in the Middle East, the US and Russia. It rose by 3.9% in 2012 and is expected to further grow with an annual rate of around 3.3%. Out of all nations, the US remains the top contributor in the overall production of gas. The total marketed production of natural gas stood at 69.33 tcf, which is 4.5% higher compared to a year ago.

It is expected that the ongoing exploration of shale gas and tight gas in the nation will further push production numbers higher and reach the level of 69.59 tcf in 2013, 0.5% higher compared to the year 2012.

Higher domestic production of natural gas helped the US to reduce its reliance on imports which is justified by the continuous downside in the import numbers since the year 2010. Imports fell by almost 18% in 2012 as compared to the year 2011.

Outlook

Unfavourable weather conditions, followed by lower heating demand in the nation is expected to continue in the second quarter of 2013. Continuous increase in domestic production of shale oil and gas in the US has resulted in oversupplied market conditions and we expect a build-up in stocks of natural gas in the latter half of 2013. Considering the factors discussed here, we expect natural gas prices to remain depressed and to trade in a tight range of USD 3/mmbtu - USD 3.5/mmbtu in the near term.

Source: Nirmal Bang's Beyond Market

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