Natural gas generation rises 21 percent

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According to the Energy Information Administration’s (EIA) recently released Electric Power Monthly, natural gas net generation rose by 21 percent from 2011 to 2012 (the biggest increase since an 11 percent rise in 1994) as low natural gas prices encouraged more natural gas consumption in the electric power sector. Natural gas generation displaced some coal generation, which fell about 12 percent from 2011 to 2012.

During 2012, an extremely hot summer combined with low natural gas prices relative to coal led to record high gas-fired power generation. BENTEK Energy Services LLC (BENTEK), which provides daily natural gas consumption, reported that 17 of the 25 highest days of power burn since 2005 occurred between June 28 and August 9, 2012.

In the past decade, most electric generating capacity additions have been natural-gas fired, and many of these were combined-cycle units. In the first half of 2012, natural gas and renewable sources continued to dominate capacity additions. Particularly, combined-cycle units have been added to states that traditionally burn coal.

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Prices:

Natural gas prices were up at most market locations, but decreased significantly in the Northeast. The Henry Hub price increased from $3.34 per MMBtu last Wednesday to $3.49 per MMBtu yesterday, an increase of 15 cents per MMBtu, or 4.5 percent. This marked the second consecutive report week of higher spot prices for the Henry Hub and most other U.S. trading points. Most trading points increased by about 10 cents per MMBtu week-on-week. However, prices in the Pacific Northwest rose by 25 cents per MMBtu, likely in response to increased natural gas use for power generation due to low rainfall levels in a region that relies heavily on hydroelectric power.

Prices declined significantly at Algonquin Citygate, serving Boston markets, and at Transcontinental Pipeline’s Zone 6 New York delivery point (Transco Zone 6 NY), serving New York City, likely due to warmer temperatures in the Northeast. The Algonquin Citygate price fell by more than half (53.1 percent), from $16.55 per MMBtu last Wednesday to $7.76 per MMBtu yesterday, a decrease of $8.79 per MMBtu. This marked the third consecutive report week that the Algonquin Citygate price fell, following a decline of $1.30 per MMBtu last week, and $4.78 per MMBtu two weeks ago. These three weeks of decline brought the Algonquin Citygate price near the $7.42 per MMBtu level that it traded at on Wednesday, January 30, before it spiked to $22.63 per MMBtu on Wednesday, February 6. The Transco Zone 6 NY price also declined this report week, decreasing by $13.36 per MMBtu to $3.85 per MMBtu at the close of trading yesterday, less than one-quarter of its $17.21 per MMBtu spot price last Wednesday.

The Nymex futures price increased week-on-week. The Nymex March contract price increased by 15 cents per MMBtu, from $3.279 per MMBtu last Wednesday to $3.427 per MMBtu on Tuesday, February 26, 3 cents per MMBtu below the Henry Hub spot price. The Nymex April contract, which replaced the March contract as the new near-month contract yesterday, closed trading at $4.434 per MMBtu, 10 cents per MMBtu or 3.1 percent above its $3.331 per MMBtu price on Wednesday, February 20. The 12-Month Strip (the average of the April 2013 to the March 2014 contract) rose by 10 cents per MMBtu or 3.1 percent, from $3.331 per MMBtu last Wednesday to $3.434 per MMBtu yesterday.

Total demand for the report week was down, despite an increase in power sector consumption. According to Bentek estimates, overall natural gas consumption for the nation decreased by 2.4 percent. The residential/commercial sector, the biggest gas-consuming sector during the winter, consumed 4.7 percent less natural gas week-on-week. Natural gas consumption for the industrial sector also decreased, by 0.8 percent. However, consumption from the power generation sector increased by 1.2 percent. Power burn fell by 7.3 percent in the Midwest, 3.8 percent in the Southeast, and 2.0 percent in the Rockies, but these declines were outweighed by a 36.3 percent power burn increase in the Pacific Northwest and a 28.1 percent power burn increase in the Midcontinent, plus additional power burn increases in the Southwest (3.8 percent) and the Northeast (2.9 percent). The Midcontinent region faced colder temperatures week-on-week, while power sector demand for the Pacific Northwest was bolstered by low rainfall. Generally dry conditions likely contributed to the increase in demand for natural gas used for electric generation in the Northwest where a large portion of the generating mix comes from hydroelectric power, and the region’s forecasted water supply decreased following a dry January.

Total supply for the report week decreased slightly. Bentek estimates an overall supply decrease of 0.6 percent for the report period. U.S. gross and dry natural gas production were down 0.5 percent. A net increase in imports from Canada of 0.3 percent also contributed to the overall supply decrease, with Canadian imports in the Northeast falling by 14.0 percent. LNG imports decreased by 31.3 percent, following last week’s 54.0 percent increase, due largely to warmer temperatures in the Northeast.

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Storage

Working natural gas in storage decreased to 2,229 Bcf as of Friday, February 22, according to EIA's WNGSR. This represents an implied net withdrawal of 171 Bcf from the previous week. This week's net withdrawal was 53 Bcf larger than the 5-year average net withdrawal of 118 Bcf, and 65 Bcf larger than last year's average net withdrawal of 106 Bcf. Inventories are currently 307 Bcf (12.1 percent) less than last year at this time and 308 Bcf (16.0 percent) greater than the 5-year average of 1,921 Bcf.

All three storage regions posted declines this week. Inventories in the East, West, and Producing regions decreased by 109 Bcf (the 5-year average net withdrawal is 78 Bcf), 12 Bcf (the 5-year average net withdrawal is 14 Bcf), and 50 Bcf (the 5-year average net withdrawal is 26 Bcf), respectively. In the Producing region, working natural gas inventories decreased 17 Bcf (7.6 percent) in salt cavern facilities and decreased 32 Bcf (4.6 percent) in nonsalt cavern facilities.

Temperatures during the storage report week were 3.1 degrees cooler than the 30-year normal temperature and 6.3 degrees cooler than the same period last year. Temperatures in the Lower 48 states averaged 34.6 degrees, compared to 40.9 degrees last year and the 30-year normal of 37.7 degrees. During the week all regions with the exception of the New England Census division were cooler than normal. The West North Central and East North Central Census divisions in the Midwest were relatively cool, averaging 5.7 and 4.9 degrees cooler, respectively, than the 30-year normal. In the Northeast, the New England Census division was close to the 30-year normal. Heating degree-days nationwide were 10.9 percent above normal and 25.1 percent above last year.

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