Natural gas inventories exceed previous 5-year average

Working natural gas inventories in the lower 48 states rose to 3.52 trillion cubic feet for the week ending Oct. 11, according to the U.S. Energy Information Administration (EIA). This was the first week in the lower 48 states that the inventories have exceeded the previous five-year average since Sept. 22, 2017.

Weekly injections in three of the past four weeks have surpassed 100 billion cubic feet, and this is about 27% more than typical injections for this time of the year. Low inventories heading into winter months can lead to higher natural gas prices, while high inventories can lead to lower prices. The inventories for the week ending Oct. 11 put an end to a 106-week streak of lower-than-normal natural gas inventory levels.

Inventories leading into the winter of 2017-18 were lower than the previous average. Cold weather over the winter led to record inventory withdrawals and contributed to a rise in the inventory deficit. The refill season typically runs from April to October, and over that period in 2018, warmer temperatures led to increased electricity demand for natural gas. The increased demand slowed inventory inputs in 2018, and by November 2018, the deficit to the five-year average had risen to 725 billion cubic feet. Inventories were 20% lower than the previous five-year average for that time of the year.

Throughout the refill season in 2019, record levels of natural gas production contributed to high levels of inventory injections, reducing the deficit to the previous year-year average. The deficit also fell as a result of the low inventory levels in 2018 being included in the average. This week, the preceding five-year average is about 124 billion cubic feet lower than it was for the same week in 2018.

The level of working natural gas inventories relative to the previous five-year average often is inversely correlated with natural gas prices. Front-month future prices at U.S. benchmark Henry Hub were as low as $1.67 per million British thermal units in early 2016. At the same time, natural gas inventories were 874 billion cubic feet more than the previous five-year average. By the winter of 2018-19, the prices rose to their highest level in several years. Natural gas inventories were 725 billion cubic feet less than the previous five-year average on Nov. 30, 2018.

The recent rise in inventories has led the prices to fall. The futures price has fallen 30.2% to $2.318 per million British thermal units as of Oct. 17, from the same date in 2018, according to the EIA.