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Natural Gas Rises on Lower-Than-Expected Supply Build

July 18, 2019 at 15:14 by Andrew Moran

Natural gas futures are edging higher on Thursday after the US government reported that domestic stockpiles of the energy source rose slightly lower than what the market had initially anticipated. The 1% gain comes amid a flurry of industry news in the US and around the world that could impact supplies and the sector’s future.

August natural gas futures rose $0.025, or 1.12%, to $2.33 per million British thermal units (btu) at 14:45 GMT on Thursday on the New York Mercantile Exchange. Despite a strong performance over the last month, natural gas prices are on track for a steep weekly decline of around 3%. Year-to-date, it is down nearly 20% as the entire energy industry has been cratering as of late.

According to the US Energy Information Administration (EIA), domestic inventories of natural gas climbed by 62 billion cubic feet for the week ending July 12. This is a bit lower than the 65 billion cubic feet analysts had penciled in. In total, supplies stand at 2.533 trillion cubic feet, up 291 billion cubic feet from the same time a year ago. They are also 143 billion below the five-year average.

In industry news, natural gas producers in one of the world’s biggest energy markets, Alberta, are proposing capping output in exchange for royalty credits. With a new energy-friendly conservative government in charge, natural gas firms are offering the province to voluntarily shut down production on certain dates and the government would extend a full or partial royalty credit in exchange.

It remains unclear if all companies are on board with this scenario and if Premier Jason Kenney and his United Conservative Party would even agree to the conditions.

The local industry has been fighting over how to contend with rock bottom prices. There is a widening divide between two possible solutions. The first is that the provincial government intervenes and institutes a mandatory limit on production. The second is to just weather the storm.

Simon Bregazzi, Jupiter Resources CEO, told The Financial Post:

We were trying to find middle ground of accomplishing the objectives on the one hand of managing supply with the objectives on the other hand of being unaffected if you don’t want to be, which is how we came up with this.

Meanwhile, a gradually increasing player in the global natural gas industry says that one of its major companies saw a production increase in the first six months of 2019. China Petrochemical Group said that its natural gas output surged 6.8%, or 940 million cubic meters, in the first half of 2019 compared to the same time a year ago.

China has initiated a scheme to boost domestic production of natural gas in an attempt to nab some market share from this skyrocketing energy industry.

In other energy markets, August West Texas Intermediate (WTI) crude oil futures plunged $1.34, or 2.36%, to $55.46 per barrel. September Brent crude futures plummeted $1.18, or 1.78%, to $62.53 a barrel. August gasoline futures shed $0.03, or 1.69%, to $1.84 per gallon. September heating oil futures tumbled $0.02, or 1.01%, to $1.87 a gallon.

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