We have a quick call out on natural gas as it relates to economic activity in the United States. A primary end use of natural gas is in industrial production, as a result the Energy Information Administration (EIA) releases data on natural gas uses in industrial production on a monthly basis. We have outlined this in the chart below and graphed it as a percentage change on a year-over-year basis.
No surprise, natural gas consumption has been in decline on a year-over-year basis since April 2008, which is in line with the broad decline in the U.S. economy that has occurred. Surprisingly, we have seen no pick up on a year-over-year basis in consumption. In fact, for the last four months we have seen declines year-over-year of greater than 5%. This is surprising because comparables are presumably easy and, based on other leading indicators such as the stock market, one would expect some pick up in industrial use of natural gas – a sign that industrial production is increasing.
On another note, the EIA’s weekly natural gas report is due out today at 2pm. We would expect to see much of the same in the way of continued inventory builds. As of last week, inventory broadly in the U.S. was almost 15% above its five year range. According to the EIA:
“At 3,589 Bcf, working gas in storage set a new record high for natural gas inventories. Current inventories exceed the previous 15-year-high reported on the Weekly Natural Gas Storage Report (WNGSR) of 3,545 Bcf, and the all-time high of 3,565 Bcf reported in the October 2007 Natural Gas Monthly. New record levels were established in the West and Producing regions, exceeding the previous records of 482 Bcf and 1,126 Bcf in the WNGSR, respectively”
The combination of soft end market demand, as emphasized in the chart below, with a domestic U.S. that is flush with natural gas supply, continue to paint a bearish picture for the commodity in the intermediate term. The underlying data by end use also provides an interesting insight into economic activity in the industrial sector in the U.S.
Daryl G. Jones