Today's EIA Weekly Natural Gas Storage Report showed a withdrawal in the Producing Region of 58 Bcf for the week ending March 1. The report placed storage at 817 Bcf in the Producing Region, which is still 123 Bcf and 17.7% above the 5 year average of 694 Bcf. NYMEX natural gas futures are based on physical delivery at the Henry Hub natural gas terminal in Southern Louisiana. The Henry Hub is the main inter-connect for a 16 intrastate and interstate natural gas pipeline system that delivers gas to the U.S. East Coast, the Gulf Coast, the Midwest, and, of course, the State of Louisiana. The Producing Region includes Louisiana, Mississippi, Alabama, Arkansas, Kansas, Oklahoma, Texas, and New Mexico. Reducing storage levels in the Producing Region is one of the keys to improving NYMEX natural gas futures pricing and the reasons are detailed in the article "Natural Gas Price Direction Depends On Producing Region Storage Withdrawals".
The last two weekly natural gas storage reports have been very bullish for reducing storage levels in the Producing Region. Next week's report for the week ending March 8 should include another very bullish report for withdrawals of natural gas from storage from the Producing Region. According to the EIA Storage Report the 5 year average for withdrawals in the Producing Region for the week ending March 8 is only 10 Bcf. The temperatures this week have been even colder than the temperatures in last week's report for many of the markets supplied by the Producing Region such as Florida and Georgia. While withdrawals of natural gas from storage in the Producing Region may or may not top this week's withdrawal of 58 Bcf, the withdrawals should easily top the 5 year average of 10 Bcf and continue to reduce the storage surplus in the Producing Region.
The 5 year storage average for the Producing Region for the week ending March 15 is an injection of 7 Bcf, for the week ending March 22 an injection of 16 Bcf, and for the week ending March 29 and injection of 17 Bcf. These are fairly easy comparisons and there is the potential for further reductions in the storage surplus in the producing region. The NOAA 6-10 day outlook for temperatures includes below normal temperatures forecasted for most of the main Producing Region markets:
One last point about storage levels in the Producing Region is production in the Producing Region has been declining according to the EIA Monthly Natural Gas Report. Most notably Louisiana, home of the Henry Hub, has seen daily production fall from 8.91 Bcf/day in December of 2011 to 7.47 Bcf/day in December of 2012. This is because unlike growing production in the Marcellus fields in Pennsylvania, production has been dropping in the Haynesville fields in Louisiana. The decline in production in the Producing Region will not only impact storage levels in the month of March, but it will continue to bullishly impact storage levels for the rest of the year.
Investors looking to take advantage of a potential rise in NYMEX natural gas futures based on above normal withdrawals from storage in the Producing Region should consider the United States Natural Gas Fund (NYSEARCA:UNG). Those looking for a longer term investment in an exploration and production company with an overweighted exposure to natural gas production in the Producing Region should consider Chesapeake (NYSE:CHK), EOG Resources (NYSE:EOG), Devon Energy (NYSE:DVN), Ultra Petroleum (UPL), Crimson Exploration (NASDAQ:CXPO), and Comstock Resources (NYSE:CRK).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.