Natural gas outlook: Prices post net losses at most locations

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Prices
For the most part, moderate weather across most of the country helped to push prices downward. Power burn rose only slightly during the week, about 0.6 percent, according to estimates from BENTEK Energy Services, LLC. The increase in power burn, however, was offset by large declines in residential and commercial consumption, leading to an overall decline in consumption of about 3.3 percent. The Henry Hub spot price fell from $3.63 per MMBtu last Wednesday to $3.54 per MMBtu yesterday.

Though still posting net declines for the week, pricing points in California posted relatively large intraweek increases, as prices rallied during the back end of the report week. The relative price strength is likely due to the heat in Southern California; after falling from higher prices at the beginning of the report week, the Southern California Border Average price rose from $3.19 per MMBtu on Friday to $3.52 per MMBtu on Wednesday. Strength in demand in this region also is likely providing support for Rockies prices. Exports to Mexico fell during the week, by about 18 percent, possibly the result of increasing competition with supplies serving the California and Southwest markets.

Northeast prices also fell, and moderate weather and upcoming storage shut-ins could put more downward pressure on prices. The price at Transcontinental’s Zone 6 point for delivery into New York fell on the week from $3.87 per MMBtu to $3.79 per MMBtu. Imports to the Northeast from Canada stayed mainly flat, rising about 0.1 percent. Several storage facilities in the Northeast have scheduled shut ins for the second half of October which could lead to more downward pressure on spot prices in the region if demand remains moderate in the coming weeks.

Though rising slightly from the previous week, LNG sendout continued to languish. Sendout averaged just a little over 0.5 Bcf per day this week with the vast majority of sendout coming from the Everett terminal in New England and the Elba Island terminal in Georgia. As domestic supply has grown, the need for imports has been reduced substantially. Since 2009, several terminals have begun to re-export LNG cargoes, and, more recently, explore the option to add liquefaction capacity to export domestically produced natural gas. Earlier this month, Dominion Resources asked permission from the U.S. Department of Energy to export domestically produced natural gas from its Cove Point facility in Maryland.

 

At the New York Mercantile Exchange, the price of the near-month contract (November 2011) fell about 8 cents, from $3.570 per MMBtu last Wednesday to $3.489 per MMBtu yesterday. The price of the 12-month strip also fell, from $4.047 per MMBtu last Wednesday to $3.948 per MMBtu yesterday. All of the contracts in this year’s winter strip (November 2011–March 2012) settled below $4 per MMBtu on Wednesday. On October 12, 2010, the price of the November 2010 near month contract was $3.629 per MMBtu, and the 12-month strip was $4.248 per MMBtu.

More Price Data 

Storage
Working natural gas in storage rose to 3,521 Bcf as of Friday, October 7, according to EIA’s WNGSR (see Storage Figure). Following a net injection of 112 Bcf from the previous week, stocks are now 56 Bcf below last year and 68 Bcf above the 5-year average. The injection was much larger than the 5-year average injection of 72 Bcf and last year’s injection of 90 Bcf.

This was the largest net injection since the week ending June 12, 2009. Coming on the heels of two other weeks with very large injections, this build shows that stocks are growing quickly during a period of mild weather. With production at very high levels, stocks were able to rapidly gain ground in the absence of much power sector demand and before major heating demand begins.

Temperatures during the week ending Thursday, October 6 averaged 67.7 degrees, 1.7 degrees cooler than normal and 0.3 degrees warmer than last year (see Temperature Maps and Data). Regionally, temperatures were mixed and mostly mild with every division averaging more than 54 but less than 70 degrees. All three divisions of the South Census Region as well as the Pacific, Middle Atlantic, and West North Central divisions were cooler than normal, but New England, the East North Central, and the Mountain divisions were warmer. Nationwide, heating degree-days were 11 percent above normal, but cooling degree days were down 35 percent.

More Storage Data

Other Market Trends
Winter Fuels Outlook Projects Higher Natural Gas, Propane, and Heating Oil Expenditures this Winter. On October 12 EIA released the Short-Term Energy Outlook and Winter Fuels Outlook, which projects that expenditures for natural gas, propane, and heating oil will increase by 3 percent, 7 percent, and 8 percent, respectively, from last winter. Expenditures for electricity, on the other hand, are expected to fall slightly. Though the winter (October 1, 2011–March 31, 2012) is projected to be about 2 percent warmer than last winter, according to the National Oceanic and Atmospheric Administration, temperatures will vary widely by region. Among the highlights:

 

- Heating oil customers (80 percent of which are located in the Northeast) are expected to spend $193 more this winter and pay the highest average winter price on record (but lower than spikes reached in the summer of 2008 when crude oil prices spiked).

- Households heating with natural gas (about one-half of households in the U.S.) are expected to spend about $19 more this winter than last winter. The expenditure increase represents a 1-percent decline in consumption (due to warmer temperatures), more than offset by a 4-percent increase in prices.

- Propane customers will spend about 5 percent more this winter, with increases varying widely by region.

- Customers who use electricity for heating (about 37 percent of households) can expect to spend about $6 less this winter, with consumption declines more than offsetting slight price increases. About 62 percent of households using electricity for heating are located in the South.

More Summary Data


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