Natural gas outlook: Spot prices soft

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Prices

Prevailing natural gas prices continued their decline during the week except for a brief respite around the Presidents Day holiday when a short cold snap passed. The New York citygate price jumped $6.40 per MMBtu on Tuesday, hitting $11.45 per MMBtu before giving back $3.07 of the gain yesterday. The New York citygate was also one of the few pricing points to show a gain over the week, rising from $4.63 per MMBtu last Wednesday to $8.38 per MMBtu yesterday. The Chicago citygate was more representative of the general weekly trend and dropped from $4.05 per MMBtu (1.2 percent) the previous Wednesday to $4.00 per MMBtu yesterday, leaving the price $1.08 per MMBtu less than last year.

Over the week, the Henry Hub price followed suit dropping from $3.93 per MMBtu to $3.83 per MMBtu. The Henry Hub price is now down over $1 from last year.

A falloff in natural gas consumption during the week, which exceeded a falloff in supply, was the primary catalyst causing the price decline to continue. According to estimates from BENTEK Energy Services, LLC, domestic consumption this week decreased by 8.0 percent from the previous week. A decrease in power consumption of 22.3 percent led the decline followed by a reduction of 4.3 percent in the industrial sector. The giant residential/commercial sector saw a drop of 2.6 percent, in line with the general trend of moderating temperatures during the period.

According to BENTEK estimates, the average 66.4 billion cubic feet per day (Bcf/day) of nominal total gas supply represented a decrease of 1.6 percent from last week’s value. Domestic gas production was up 0.8 percent, accounting for the bulk of any gains. Canadian imports (about 6.2 Bcf/day) were down 17.4 percent for the week and remain 15.7 percent below year-ago levels. Things were little changed in the liquefied natural gas (LNG) arena, where imports (less than 1 Bcf/day) remained nearly 23.9 percent below last week and 27.5 percent below the corresponding week last year.

At the NYMEX, the price of the March 2011 contract decreased 2.1 cents, from $3.921 per MMBtu to $3.9000 per MMBtu over the week. The NYMEX price was up 3.3 cents per MMBtu yesterday in probable anticipation of today’s contract expiration coupled with the release of this week’s EIA storage report that might signal a shift from a surplus to a deficit inventory relative to last year.

Storage

Working natural gas in storage fell to 1,830 Bcf as of Friday, February 18, according to EIA’s WNGSR (see Storage Figure). The 81 Bcf draw was much smaller than the 5-year average draw for the week of 148 Bcf and last year’s draw of 174 Bcf. Stocks were 48 Bcf below last year’s level and 61 Bcf below the 5-year average.

The week’s draw reverses a four-week trend of larger year-over-year draws. Unusually colder weather over the past several weeks had increased residential and commercial heating demand while shutting in significant natural gas production, leading to higher inventory withdrawals. This report week’s relatively warm weather reduced heating consumption while allowing production to resume. As a result, the week-over-week draw was reduced dramatically from 233 Bcf to just 81 Bcf.

Temperatures in the lower 48 States during the week ending February 17 were warmer than normal for the first time in four weeks and also warmer than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 40.1 degrees, 3.6 degrees warmer than the 5-year average and 7.4 degrees warmer than last year (See Temperature Maps and Data). Every region of the country was warmer than normal except the Pacific and New England census regions, which were slightly colder. Heating degree days nationwide were about 12 percent below average, and 22 percent below last year.

Other Market Trends

Natural Gas Rig Count Falls to 905. The natural gas rotary rig count, as reported by Baker Hughes, Incorporated, fell by 1 from the previous week to 905, according to data released February 18. The rig count has remained in the low 900s for the past several weeks, and is only slightly above its year-ago level of 893. On the other hand, horizontal rigs (including both oil and natural gas) have increased steadily this year. This week’s horizontal rig count rose to 984, an increase of 4 from the previous week. Horizontal rigs are almost 50 percent greater than their year-ago levels. At 223, vertical rigs are roughly equal with their year-ago levels. Rigs targeting oil, according to Baker Hughes data, have increased more than 81 percent in the past 12 months.

The U.S. Department of Energy (DOE) Grants Freeport LNG Authority to Export LNG to 15 Countries. DOE’s Office of Fossil Energy recently granted Freeport LNG long-term authorization to export LNG to any country with whom the United States has, or in the future enters into, a free trade agreement requiring national treatment for trade in natural gas and LNG. In 2010, Freeport announced plans to build liquefaction capacity at its existing LNG import terminal on Quintana Island, Texas. More information is available here: http://www.fossil.energy.gov/programs/gasregulation/authorizations/2010_Long_Term_Applications.html#fta.

Natural Gas Transportation Update

  • TransCanada Pipelines, Ltd., on Wednesday, February 23, extended the time period of an Emergency Operating Condition (EOC) in the aftermath of an eruption of its mainline in Northern Ontario, which resulted in the loss of operations of two of its three pipelines in the area. The incident, which was reported downstream of the company’s compressor station 75, occurred the previous Saturday. TransCanada said it will not allow discretionary services through the impacted area. The EOC is now expected to end on Friday, February 25.

  • Gulf South Pipeline Company, LP, this week said it will begin maintenance next Monday, February 28, at its compressor station in Airport, Alabama. The maintenance, which is expected to continue until April 1, will result in the interruption of gas flow through the station in either direction. Nominations and gas flow from receipt to delivery locations on Mobile Bay Pipeline will continue to be available for service.

  • Natural Gas Pipeline of America Company (NGPL) on Monday said it will place into service a new interconnect with Bridgeline Holdings L.P., at Johnsons Bayou in Louisiana. The service will be available in mid-March, NGPL said. The delivery point is located downstream of Compressor Station 342 in Cameron Parish, Louisiana.

  • Maintenance will occur at five compressor stations on Rockies Express Pipeline LLC (REX) during March, according to operator Kinder Morgan. Emergency shutdown testing at its compressor stations in Bertrand, Nebraska, will limit capacity in the area to 1.4 Bcf from its usual capacity of about 1.8 Bcf per day. Also, REX intends to perform maintenance between Cheyenne and Julesburg compressor stations in Wyoming late in the month that will result in a reduction in available capacity.


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