Natural gas outlook: Consumption higher as colder weather hits

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First taste of cooler weather evidenced by uptick in residential/commercial natural gas consumption over last two reporting weeks.

An uptick in residential/commercial natural gas consumption took place over the last two reporting weeks, according to estimates from BENTEK Energy LLC (Bentek) signaling the arrival of cooler temperatures and increased natural gas demand for heating homes and businesses.

The increase in daily consumption began over Columbus Day weekend. Residential/commercial consumption began the last report week on Thursday, October 4 at 13.3 billion cubic feet (Bcf) per day, rising to 16.9 Bcf per day on Friday, October 5. Consumption rose to 20.3 Bcf per day on Saturday, October 6, and peaked at 22.9 Bcf per day on Sunday, October 7, 62.1 percent above the five-year daily average, according to Bentek. This marked the first time that average residential/commercial consumption topped 20.0 Bcf per day in over five months, but it was still well below the 50.0 Bcf per day January average for 2007-2011. Consumption during the last report week averaged 19.2 Bcf per day, a six-month high. For the most recent report week, consumption averaged 17.0 Bcf per day, a decline from the previous week but still significantly above September levels.

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This increase in demand took place alongside a cooling in national temperatures. According to National Oceanic and Atmospheric Administration (NOAA), the mean national temperature for the week ending on Saturday, October 13 fell to 54.8 degrees Fahrenheit. This reflected a 7.6 percent decline from the previous week’s national mean temperature of 59.3 degrees Fahrenheit. The biggest drops occurred in the Northeast Climate region, where the mean temperature fell week-on-week by 14.3 percent to 50.0 degrees Fahrenheit, and the East North Central Climate region, where the mean temperature fell week-on-week by 12.0 percent to 44.9 degrees Fahrenheit.

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Prices:

Natural gas spot price changes were mixed over the report week, with large net increases in some Western markets, and some small overall declines at points in the Mid-Atlantic states and the Gulf Coast. The Henry Hub spot price declined 2 cents overall, from $3.26 per MMBtu last Wednesday to $3.24 per MMBtu yesterday. However, the Henry Hub price had edged up to $3.38 per MMBtu on Friday, before falling back down.

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Price changes varied widely among the Northeastern states. At Transcontinental Pipeline’s Zone 6 trading point for delivery into New York City, prices remained mostly in the $3.40 - $3.50 per MMBtu range for the report week, beginning the week at $3.46 per MMBtu and ending at $3.43 per MMBtu. On the other hand, New England prices were more varied during the report week. The spot price at the Algonquin Citygate, which serves Boston consumers, swung up to $4.44 per MMBtu in trading on Tuesday, before dropping back to end the week at $3.88 per MMBtu yesterday. Overall, the Algonquin Citygate posted a net increase of 27 cents per MMBtu. The mid-week increases were likely the result of infrastructure constraints on Algonquin Gas Transmission’s system. The 56-cent per MMBtu drop on the last trading day of the report week likely reflected forecasts for mild weather in New England this weekend.

A heat wave in the West drove California prices upward. With forecast temperatures in the 90s for some parts of California and Arizona, prices at the major trading points in the West increased substantially over the report week. The Southern California Citygate price increased 23 cents per MMBtu over the report week, and pricing points in Arizona and New Mexico also saw double-digit increases. Also likely playing a role in price increases were infrastructure constraints; SoCal Gas reduced capacity after declaring force majeure this week due to a maintenance issue at a receipt point in South Needles, California.

Overall natural gas supply declined slightly this week, according to data from Bentek. Dry production declined by 0.2 percent, and imports from Canada fell 5.2 percent. Liquefied natural gas (LNG) imports increased 12.7 percent this week, but averaged 220 million cubic feet per day, remaining a very small portion of the United States’ total supply.

Overall natural gas consumption dropped by 4 percent, as declines occurred in most major consuming sectors. Consumption of natural gas for electric power generation fell 2.7 percent, while residential and commercial use declined 9.5 percent due to weather-related demand declines. Consumption increased 0.2 percent in the industrial sector.

At the NYMEX, the price of the near-month (November 2012) contract was essentially unchanged this report week. The contract fell slightly from $3.475 per MMBtu last Wednesday to $3.470 per MMBtu yesterday. Similar to the Henry Hub spot price, the futures contract rose about 13.6 cents from Wednesday to Friday. The price of the 12-month strip (the average of futures contracts from November 2012 – October 2013) increased to $3.908 per MMBtu from $3.890 per MMBtu last Wednesday

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Storage

Working natural gas in storage increased to 3,776 Bcf as of Friday, October 12, according to EIA’s WNGSR. This represents an implied net injection of 51 Bcf from the previous week. This week’s injection was 20 Bcf below the 5-year (2007-2011) average injection of 71 Bcf, and 55 Bcf below last year’s injection of 106 Bcf. Inventories are currently 181 Bcf (5.0 percent) greater than last year at this time and 249 Bcf (7.1 percent) greater than the 5-year average.

All three storage regions posted increases this week. Inventories in the East, West, and Producing regions increased by 24 Bcf (the 5-year average net injection is 40 Bcf), 8 Bcf (the 5-year average net injection is 6 Bcf), and 19 Bcf (the 5-year average net injection is 24 Bcf), respectively. In the Producing region, working natural gas inventories increased 11 Bcf (4.2 percent) in salt cavern facilities and increased 8 Bcf (0.8 percent) in nonsalt cavern facilities.

Temperatures during the storage report week were 4.6 degrees cooler than the 30-year normal temperature and 7.4 degrees cooler than the same period last year. Temperatures in the lower 48 States averaged 55.0 degrees, compared to 62.4 last year and the 30-year normal of 59.6 degrees. During the week, all but one of the Census divisions were cooler than the 30-year normal, particularly the West North Central and East North Central Census divisions in the Midwest, which averaged 11.1 and 8.6 degrees, respectively, cooler than the 30-year normal. In the Northeast, the New England Census division was relatively warm, averaging about a degree warmer than the 30-year normal. Heating degree-days nationwide were 50 percent above normal and 153 percent above last year.

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