Natural gas outlook: Prices on the rise across the board

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Prices

While most price increases across the country were somewhat moderate, a heat wave in the Northeast led to substantial jumps in prices as consumers used natural gas via electric generation for cooling. At Transcontinental Pipeline’s Zone 6 trading point for delivery into New York City, prices rose $2.32 per MMBtu, from $5.03 last Wednesday to $7.35 yesterday. From Tuesday to Wednesday, the New York City price jumped $1.27 per MMBtu. At many other trading locations in the Northeast, prices behaved similarly, increasing more than a dollar on the week. The differential between the New York price and the Henry Hub price, as well as the difference between the Boston price and the Henry Hub price, spiked in the last few days of the report week.

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The heat in the Northeast led to a marked increase in Canadian pipeline imports to the area. While Canadian imports to the Midwest and West fell on the week, according to data provided by BENTEK Energy Services, LLC, pipeline imports to the Northeast rose 17.6 percent from the previous week. On Wednesday, June 8, Canadian imports to the Northeast totaled 1.6 Bcf, a sharp uptick from the weekend levels below 500 million cubic feet (MMcf). The increase in Canadian imports to the Northeast, as well as increases in flows from the Southeast, was spurred by the increase in Northeast prices relative to other areas.

Natural Gas power burn for the total Lower 48 States rose 7 percent week over week, driven by gains in the Northeast, Midwest, and Southeast. West power burn remains relatively low, as the Bonneville Power Administration has put into place a curtailment policy for the Pacific Northwest on thermal and wind generation, in response to large amounts of hydro resulting from runoff from the largest snowpack in years. Natural gas supply this week remained high, though dropping slightly from last week. Production fell less than one-half of one percent, but levels remained above 64 Bcf per day, according to BENTEK data. LNG sendout dropped close to 27 percent from the previous week, as sendout from the Golden Pass facility declined from its level of more than 700 MMcf per day seen the past couple of weeks.

Warm temperatures prevailed across most of the rest of the country, though price increases were not nearly as robust as they were in the Northeast. In Chicago, for example, temperatures reached into the 90s on Tuesday, and the Chicago Citygate price hit $5.02 per MMBtu, an increase of 30 cents from the previous week. As temperatures cooled off the next day, the price dropped back down to $4.92 per MMBtu.

At the New York Mercantile Exchange, the price of the near-month (July 2011) contract rose from $4.692 last Wednesday to $4.847. The 12-month strip (the average of the 12 contracts between July 2011 and June 2012) rose from $4.89 to $5.05. The largest increases were on the front end of the 12-month strip, as contracts between July and October rose more than 20 cents on the week.

More Price Data 

Storage

Working natural gas in storage rose to 2,187 Bcf as of Friday, June 3, according to EIA’s WNGSR (see Storage Figure). The 80 Bcf net build is, for the second week in a row, lower than both the 5-year average build for the week of 96 Bcf and last year’s build of 98 Bcf. Stocks are now 255 Bcf below last year’s level and 58 Bcf below the 5-year average.

Every region witnessed a smaller than average build. The East and West Regions continue to lag well behind previous years. The East Region is now 124 Bcf below average and 180 Bcf below last year. In fact, the region is just 24 Bcf above the 5-year minimum storage level reached in 2008 at this time.

Temperatures in the lower 48 States during the week ending June 2 were warmer than normal but slightly cooler than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 69.9 degrees, 3.3 degrees warmer than the 5-year average and 1.3 degrees colder than last year (see Temperature Maps and Data). Similar to the previous week, every region of the country was warmer than normal with the exception of the Mountain and Pacific Regions in the West. The Northeast was particularly hot with the New England and Middle Atlantic Regions 9.6 and 9.9 degrees hotter than normal. Cooling degree-days were 61.7 percent above normal for the country.

More Storage Data

Other Market Trends

EIA Expects Strength in Natural Gas Production in 2011. EIA released its Short-Term Energy Outlook on June 8, 2011, which includes short-term forecasts through the end of 2012. This month’s Outlook significantly revises the natural gas marketed production forecast for 2011, to 64.6 Bcf per day, up 2.3 percent from the previous month’s forecast. The strength in production occurs despite a year-over-year decline in gas-directed rig activity; however, recent growth in oil-directed rigs could lead to greater production of associated natural gas. Consumption is expected to total 67.1 Bcf per day in 2011, and 67.2 in 2012. Both consumption of natural gas for electric power generation and industrial consumption grow in 2011 and 2012. This month’s Outlook expects Henry Hub prices to rise in 2012 to $4.58 per MMBtu, from $4.25 per MMBtu in 2011. The increase in prices will play a role in maintaining strength in production in 2012.

U.S. Exports to Canada and Mexico Increase Year-To-Date 2011. U.S. pipeline exports of natural gas have increased substantially in 2011, likely one result from continued near-record high U.S. natural gas production. As reported in the Natural Gas Monthly for May 2011, U.S. exports to Canada for the first quarter of 2011 increased a total of about 50 Bcf or approximately 24.7 percent in comparison with 2010. This increase is having an effect on net imports from Canada, which decreased year-to-year 6.5 percent through the first quarter of 2011. Gross U.S. pipeline exports to Mexico, which is historically the recipient of the second largest volume of U.S. exports behind those to Canada, in the first three months of 2011 nearly doubled in comparison to the same time period in 2010. Through March 2011, U.S. exports to Mexico reached 113.4 Bcf, compared with 66.5 Bcf in 2010. This increase corresponds with lower natural gas production by Petróleos Mexicanos (Pemex), the Mexico State oil and natural gas company. Through April 2011, overall production by Pemex decreased 1.7 percent. However, in the north of Mexico (where supplies compete with U.S. exports), the decrease is higher at 10.9 percent year-to-date. If the current pace of U.S. exports continues, U.S. exports in 2011 would set a record high at well above 1 trillion cubic feet. According to BENTEK Energy, which monitors the U.S. pipeline grid (including import and export points) for information on flows of natural gas, the increased level of exports has continued through the beginning of June. As of June 9, U.S. exports to Mexico are up year-to-date by 86.2 percent. Similarly, U.S. exports to Canada have increased 3.2 percent on the year, leading to an 8.0 percent decline in net imports from Canada.

Natural Gas Transportation Update

(Note: As part of a re-design of the Natural Gas Weekly Update (NGWU), the Transportation Section will be discontinued after this week. More changes in the NGWU will be announced in the near future.)

- Sea Robin Pipeline Company, LLC, on Tuesday said that it had completed system maintenance and repairs on a 30-inch diameter pipeline in the Gulf of Mexico. The pipeline company said it is once again accepting nominations from their receipt point at South Marsh Island. The Sea Robin gas processing plant, on the company’s pipeline system, had resumed processing and plant thermal reduction operations and was accepting nominations for Wednesday.

- On Tuesday, Algonquin Gas Transmission, LLC, reported an outage at its compressor station in Oxford, Connecticut. As repair efforts continue, there will be a capacity reduction of about 210 MMcf per day through the area.

- Several pipeline companies in the U.S. Northeast this week cautioned shippers of reduced flexibility on their pipelines due to higher demand from a heat wave in the region. Tennessee Gas Pipeline Company cited scheduled maintenance and warmer market-area forecasts in issuing a notice requiring all delivery point operators in those zones to keep actual daily takes out of the system equal to or less than scheduled quantities regardless of their cumulative imbalance position. Similarly, pipelines owned by Spectra Energy Corporation (including Texas Eastern Gas Transmission, Algonquin, and Maritimes & Northeast Pipeline) are requiring shippers in their Northeast market area to either stay on rate or run positive imbalances starting Tuesday until further notice.

 


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