HP Helmerich and Payne Inc

The U.S. Energy Department's weekly inventory release showed a larger-than-expected drop in natural gas supplies resulting from production erosion due to outages in several major pipelines across the country. However, gas stocks still remain at elevated levels – 10.3% above the 5-year average and 4.3% higher than the same period last year – reflecting low demand amid robust onshore output.

The Weekly Natural Gas Storage Report – brought out by the Energy Information Administration (EIA) every Thursday since 2002 – includes updates on natural gas market prices, the latest storage level estimates, recent weather data and other market activities or events.

The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of natural gas.

It is an indicator of current gas prices and volatility that affect businesses of natural gas-weighted companies and related support plays like Anadarko Petroleum Corp. (APC), Chesapeake Energy (CHK), EnCana Corp. (ECA), Devon Energy Corp. (DVN), Nabors Industries (NBR), Patterson-UTI Energy (PTEN), Helmerich & Payne (HP) and Halliburton Co. (HAL).

Stockpiles held in underground storage in the lower 48 states fell by 102 billion cubic feet (Bcf) for the week ended December 9, 2011, above the guidance range (of 94–98 Bcf draw) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc (MHP).

The decrease – the third consecutive withdrawal of the 2011-2012 winter heating season after stocks hit an all-time high in mid-November – is significantly less than last year’s draw of 154 Bcf and the 5-year (2006–2010) average drawdown of 142 Bcf for the reported week. The current storage level – at 3.729 trillion cubic feet (Tcf) – is up 154 Bcf (4.3%) from last year and 347 Bcf (10.3%) over the five-year average.

A supply glut has pressured natural gas futures for most of 2011, as production from dense rock formations (shale) – through novel techniques of horizontal drilling and hydraulic fracturing – remain robust, thereby overwhelming demand. As a matter of fact, natural gas prices have dropped nearly 40% from this year’s peak of about $5.00 per million Btu (MMBtu) in June to the current level of around $3.10 (referring to spot prices at the Henry Hub, the benchmark supply point in Louisiana).

To make matters worse, warmer-than-average weather across most of the country has delayed the arrival of winter weather and the corresponding increased natural gas demand for heating, indicating a grossly oversupplied market that continues to pressure commodity prices in the backdrop of sustained strong production.

 
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