Northeast Utilities System (NU), Chevron Corporation (CVX): Will Natural Gas Fall Below $3?

Storage

The storage buildup in the past several weeks was much faster than the normal pace; the gap between the current storage levels to previous years’ levels has contracted in recent weeks. During June, storage buildup was 392 Bcf. In comparison, during the same time frame in 2012, the buildup was 248 Bcf. If the buildup pace will continue to pick up, this could suggest the natural-gas market is loosening up.

The table below shows the gap contraction in recent weeks.

The contraction suggests the natural-gas market is loosening up in recent weeks.

Liquefied natural gas in Australia

The LNG market in the U.S is slowly progressing, but outside the U.S the LNG market continues to heat up — especially in Australia. According to the EIA’s recent report, Australia will be able to augment its LNG export capability by more than 200% by the end of 2020. Australia’s current LNG export capacity is 3.2 Bcf/d. By 2020, this capacity will reach 11.2 Bcf/d. This increase in capacity will eventually lead to a rise in demand for LNG in Japan, China, India, Korea, and Mexico.

One of the main driving forces behind this increase in Australia’s LNG export capability is Chevron Corporation (NYSE:CVX),  which develops the largest LNG project in Australia named the Gorgon LNG (opens pdf) terminal. This terminal is projected to start operating by March 2015. Currently, nearly 60% of the terminal is complete. The project is expected to generate 2.0 Bcf/d of natural gas. This means that by 2015, Chevron Corporation (NYSE:CVX) will start seeing a rise in revenue from LNG. Such projects are likely to make LNG more common but at the same time lower the price of natural gas.

Take away

The natural-gas market is likely to keep cooling down and we may see a further drop in prices in the coming weeks. But natural-gas prices will remain well above the $3 mark in the coming weeks as the demand in the power sector starts to pick up.

The article Will Natural Gas Fall Below $3? originally appeared on Fool.com is written by Lior Cohen.

Lior Cohen has no position in any stocks mentioned. The Motley Fool recommends Chevron. Lior is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.