Natural gas outlook: Futures price nears 10-year low

Prices:

With few exceptions, natural gas prices dropped substantially at most market locations. The Henry Hub price continued declines from last week, falling 32 cents over the week to end yesterday at $2.49 per MMBtu. Most other pricing points that posted declines fell by similar amounts, in the 20 to 30 cents range. A relatively warm winter so far, as well as higher-than-average storage levels, has put downward pressure on natural gas prices this year.

One major exception to the general price declines this week was the Northeast. Price changes were somewhat mixed, with New England and New York posting relatively large gains and other points declining. Prices at the Algonquin Citygate (which serves Boston) rose on the week by $1.80 per MMBtu, to as high as $7.36 per MMBtu on Friday, January 13, heading into the long holiday weekend. At Transcontinental Pipeline’s Zone 6 trading point for delivery into New York City, prices rose $2.04 per MMBtu on the week, from $3.17 per MMBtu last Wednesday to $5.21 per MMBtu yesterday. Price increases were likely related to cold weather expected for the end of the report week. Pipeline constraints in the Northeast can put upward pressure on prices, causing New York and New England prices to trade at a premium to the Henry Hub.

The Pacific Northwest was the other exception. Prices at the Northwest Sumas trading point, in Washington State, rose by 4 cents on the week from $3.14 to $3.18. The basis spread (the difference between a regional price and the benchmark Henry Hub) rose sharply this week as Sumas increased slightly and the Henry Hub price fell. Cold weather in the Pacific Northwest has likely driven the price increase. While Seattle has been receiving snow, neighboring British Columbia has also been experiencing frigid temperatures, leading to declines in Canadian exports to the West. According to data from BENTEK Energy LLC (Bentek), the West’s imports from Canada fell by almost 11 percent on the week. Power burn in the region increased on the week by about 10 percent.

Both supply and consumption increased this week. Natural gas production remained flat, according to estimates from Bentek, yet remains well above year-ago levels. Overall, imports from Canada increased by about 6 percent, as imports to the Midwest and Northeast offset declines into the West. LNG sendout, while still at very low levels relative to last year, increased by about 7 percent. Total consumption increased by about 20 percent, with power burn and residential/commercial consumption showing the largest increases. These increases were likely weather-related, as consumers and businesses turned on the heat, using natural gas and electric power for space heating. Consumption increased over last year’s levels, as the weather got colder, but still remains below average levels for the week. Residential and commercial consumption averaged 46.8 Bcf per day this week, compared with a 5-year (2007-2011) average of 49.5 Bcf per day.

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