Natural gas outlook: Futures market trends slightly higher

Pipeline Exports to Mexico Hit 7-Year High.

U.S. pipeline exports to Mexico reached 1,867 million cubic feet per day (MMcf per day) on Tuesday, June 5, according to data from BENTEK Energy LLC (Bentek). This is the highest daily volume of U.S. exports to Mexico in the 7.5 years for which Bentek has data available. Pipeline exports from Texas usually make up around 75 percent of the total U.S. pipeline exports to Mexico, while exports from the other Southwestern border states make up the balance.

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U.S. exports to Mexico have displayed strong growth since 2011, as Mexico increased its natural gas-fired power generation amid declining domestic natural gas production. Strength in U.S. supply, as well as relatively low natural gas prices, have made U.S. natural gas an attractive option for Mexico.

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Prices:

The Henry Hub day-ahead price registered a modest increase for the week, dipping on Thursday and Friday before climbing on Monday and Tuesday, closing the week at $2.41 per MMBtu, up 0.8 percent. In the Northeast, cooler temperatures helped generate significant price increases earlier this week, with a return to more seasonal temperatures moderating end-of-week prices.

At the NYMEX, the July 2012 contract ended the week virtually unchanged, rising slightly from $2.418 per MMBtu last Wednesday to $2.421 per MMBtu yesterday, an increase of 0.1 percent. Prices dropped late last week, falling to $2.326 per MMBtu on Friday, but rose on Monday and Tuesday before retreating slightly yesterday. The 12-Month Strip (average of June 2012 to May 2013 contracts) closed yesterday at $2.999 per MMBtu, up 3.8 cents per MMBtu (1.3 percent) for the week.

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Prices at many downstream trading locations registered overall declines, dropping on Thursday and Friday before gaining ground toward the end of the week. For example, spot prices at the Algonquin Citygate trading point for delivery into Boston, which started the week at $2.70 per MMBtu, fell to $2.31 per MMBtu on Friday and then rose for much of the remainder of the period to close yesterday at $2.57 per MMBtu (down 4.8 percent for the week). Similarly, prices at the Transcontinental Pipeline’s Zone 6 trading point (which serves New York City markets) declined from $2.59 per MMBtu last Wednesday to $2.29 per MMBtu on Friday, then climbed to $2.54 per MMBtu by week’s end (down 1.9 percent).

Total consumption for the report week registered an overall decline, with a decrease in power sector demand offsetting increases in other sectors. According to estimates from Bentek, domestic natural gas consumption fell by 2.8 percent from last week, driven by a decline of 10.1 percent in power sector consumption. Residential/commercial and industrial sector consumption ended the week up 9.3 percent and 1.3 percent, respectively. For all sectors, consumption exceeded levels for the same week last year.

Total supply for the week registered an overall decline of 1.3 percent, reflecting a similar drop in dry gas production. According to Bentek estimates, domestic weekly dry gas production was 1.3 percent lower than the previous week (although 2.6 percent above the same time last year). Imports from Canada also rose modestly (1.5 percent), with increases in shipments to the West and Midwest offsetting declines in the Northeast. For the week, imports from Canada stand 19.3 percent above year-ago volumes. Liquefied natural gas (LNG) sendout dropped sharply, down 32.7 percent from last week; sendout volumes remain well below (73.5 percent) year-ago levels.

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Storage

Working natural gas in storage increased to 2,877 Bcf as of Friday, June 1, according to EIA's WNGSR. This represents a net injection of 62 Bcf from the previous week. This week’s injection was 37 Bcf lower than the 5-year (2007-2011) average injection for the same week. During the same week last year, the implied net injection was 81 Bcf. Working inventories are currently 713 Bcf (33 percent) greater than their year-ago levels and 687 Bcf (31 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 38 Bcf, 13 Bcf, and 11 Bcf, respectively. In the Producing Region, working natural gas inventories decreased 1 Bcf in salt cavern facilities and increased 12 Bcf in nonsalt cavern facilities.

Temperatures in the lower 48 States during the week ending May 31 were 4.7 degrees warmer than the 30-year normal temperature and 1.4 degrees warmer than the same period last year. The average temperature in the lower 48 States was 70.7 degrees, 4.7 degrees higher than the 30-year normal of 66.0 degrees. While overall temperatures were a few degrees warmer than normal, temperatures varied somewhat across Census Divisions. The Middle Atlantic and New England Regions in the Northeast were particularly warm, averaging 9.7 and 7.9 degrees, respectively, warmer than the 30-year normal. In the West, the average temperatures in the Pacific and Mountain Regions were both about a degree (1.4 and 1.0, respectively) cooler than the 30-year normal.

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