Natural gas outlook: Mild temperatures hold prices down

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Prices:
Movement in the Henry Hub day-ahead price reflected the widespread decline of market prices in this week's cash market by falling 10.7 percent from $3.45 per MMBtu the previous Wednesday to $3.08 per MMBtu yesterday. As the accompanying table on the left shows, the Henry Hub cash price progressed steadily downward with five days of consecutive losses even though end-use markets increased their weekly gas consumption modestly.

At the NYMEX, the January 2012 contract fell every day except Tuesday, from $3.421 per MMBtu last Wednesday to $3.136 per MMBtu yesterday, a drop of 28.5 cents (8.3 percent). Over the same period, the February 2012 natural gas futures contract dropped slightly less, by 27.1 cents per MMBtu, and now stands only 5.1 cents above the January contract, possibly reflecting the effects of high natural gas storage levels and continued strong production.

All downstream trading locations responded with lower prices from reduced weather load this week. Spot prices at Transcontinental Pipeline's Zone 6 trading point for delivery into New York City, which started the week at $3.94 per MMBtu, showed a 58 cent per MMBtu price loss over the week (Wednesday to Wednesday) to close at $3.36 per MMBtu (down 14.7 percent). Over the same period, the Chicago citygate spot price registered a somewhat smaller 39 cent per MMBtu price loss (from $3.60 per MMBtu last Wednesday) and ended the week at $3.21 per MMBtu (down 10.8 percent).

In the midst of somewhat seasonal, but not especially cold temperatures, consumption posted a modest increase for the week. According to estimates from Bentek, domestic gas consumption increased by 7.9 percent over last week. The residential/commercial sector led the increase with a 12.3 percent gain while the industrial sector tallied a 2.6 percent increase. The power sector posted a 5.0 percent increase indicating a building, but still generally light, weather load.

Despite last week's continued production erosion and clear price slide, overall supply was up slightly. According to Bentek estimates, the week's overall average total gas supply posted a 0.9 percent increase from last week's level despite another softening in dry gas production. Domestic weekly dry gas production averaged 63.3 Bcf per day, 0.5 percent lower than the previous week, but 7.7 percent above this time last year. The slight fall in this week's dry gas production was partially offset by a 17.5 percent increase in imports from Canada, which averaged 6.1 Bcf per day over the period. Imports from Canada stand 22.1 percent below year-ago volumes for the same week. There were also modest supply gains registered in the liquefied natural gas (LNG) arena during the week, where imports averaged 787 million cubic feet (MMcf) per day but remained 40.9 percent below year-ago levels.

More price data

Storage
Working natural gas in storage fell to 3,729 Bcf as of Friday, December 9, according to EIA's WNGSR. This represents an implied net withdrawal of 102 Bcf, much smaller than both the 5-year average withdrawal of 142 Bcf and last year's 154 Bcf draw. Stocks are now 347 Bcf above the 5-year average and 154 Bcf above last year.

After three weeks of small builds, the West Region saw a major draw last week, with storage dropping by 24 Bcf. This was the only region to exceed the average draw for the week. Unusually cold temperatures throughout much of the region increased heating demand. The next several weeks could also see relatively large draws in the West due to a fire and resulting outage in the Ruby Pipeline, which moves gas into the region.

Temperatures during the week ending December 8 were 1.0 degrees warmer than the 30-year normal temperature and 5.9 degrees warmer than last year. While the overall temperatures were warm during the week, regional differences were very large. The Mountain Region averaged just 27.1 degrees, 7.3 degrees colder than normal, while New England averaged 43.0 degrees, 8.1 degrees warmer than normal. Heating degree-days for the week were down only 3.9 percent from normal, but down 18.3 percent from last year.

More storage data

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