Natural gas outlook: Spot prices improve after initial decline

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Prices
Prices at most trading locations oscillated over the report week, declining between last Wednesday and the weekend, then increasing through Tuesday and subsequently dipping on the last day of the report week. Although prices were up and down over the week, most closed higher than the preceding week. The Henry Hub price declined from $3.78 per MMBtu last Wednesday to a low for the report week of $3.72 per MMBtu on Thursday, increased to $3.92 per MMBtu on Tuesday and then declined, closing at $3.88 per MMBtu yesterday. Prices at Transcontinental Pipeline’s Zone 6 trading point for delivery into New York City fell from $4.03 per MMBtu last Wednesday to $3.91 per MMBtu on Friday, jumped to $4.20 per MMBtu by Tuesday, and then closed at $4.13 per MMBtu yesterday. Similarly, the Chicago citygate price declined from $3.88 per MMBtu last Wednesday to $3.80 per MMBtu on Thursday, then climbed to $3.98 per MMBtu Tuesday, only to reverse direction and fall to $3.91 per MMBtu yesterday.

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Natural gas demand for power burn increased across the country during the report week. According to data from BENTEK Energy Services, LLC, gas burn for power increased overall by 11.1 percent, driven by increases in the Northeast and Southeast. Power burn in the Northeast rose by 28.0 percent, while the Southeast registered a 7.5 percent gain. Total demand was up by a much more modest 1.2 percent over the week. Supply remained flat, with production up by only 0.1 percent. Most of the increased demand was satisfied by imports from Canada, which increased by 5.1 percent. LNG imports rose by 17.8 percent and averaged 463 million cubic feet (MMcf)/day, while exports to Mexico jumped 32.2 percent and averaged 1460 MMcf/day over the week.

At the NYMEX, the November 2011 contract moved into the near-month spot, and dropped from $3.820 per MMBtu last Wednesday to $3.799 per MMBtu yesterday. The October contract closed at $3.759 per MMBtu yesterday, up only slightly from its 3.730 close last Wednesday. The 12-month strip (the average of the 12 contracts between November 2011 and October 2012) remained relatively steady over the week, closing at $4.133 per MMBtu last Wednesday and $4.136 per MMBtu yesterday.

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Storage
Working natural gas in storage rose to 3,312 Bcf as of Friday, September 23, according to EIA’s WNGSR (see Storage Figure). Following a net injection of 111 Bcf from the previous week, stocks are now 91 Bcf below last year and 5 Bcf above the 5-year average. The injection was much larger than the 5-year average injection of 71 Bcf and last year’s injection of 73 Bcf.

Stocks have now surpassed the 5-year average for the first time since the week of April 15. While the East region’s deficit to the 5-year average shrank significantly, after a build that was 24 Bcf above normal, stocks remain 52 Bcf below the average. This shortfall is now more than offset by levels in the Producing and West regions, 54 Bcf and 3 Bcf above average respectively, after higher than average builds in both regions this week.

Temperatures during the week ending Thursday, September 22, averaged 64.9 degrees, 4.7 degrees cooler than last week (see Temperature Maps and Data). Temperatures were cool for this time of year, averaging 1.4 degrees colder than normal and 4.0 degrees colder than last year. Regionally, temperatures were higher than normal in the West, but cooler than average in most other areas of the country. As the weather begins to turn colder, natural gas use in the electric power sector is replaced by heating consumption. Cooling degree-days were 6 percent below normal, but heating degree-days were 35 percent above normal for the week.

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Other Market Trends
Global Tightness in LNG Markets Draws Cargoes Away from the United States. Maintenance on LNG terminals and declines in production from major LNG exporting countries has led to current tightness in global LNG markets, according to recent reports from BENTEK Energy Services, LLC. Both Qatar and Trinidad have announced maintenance on facilities this fall, and, according to BENTEK, the Qatar maintenance could take 1 Bcf/d off the market through November. Prices in Asian markets, which are often much greater than U.S. prices, remain high, with reported prices in Japan averaging in the $17 per MMBtu range. U.S. LNG imports are expected to remain low, as low U.S. prices will not attract LNG onto the pipeline grid, but facilities capable of re-export may be further utilized.

Tennessee Gas Pipeline Approved to Begin Operations on Part of a Pipeline Addition in Marcellus. The Federal Energy Regulatory Commission (FERC) on Monday gave Tennessee Gas Pipeline approval to begin operating on one segment of its 300 Line project in the Marcellus Shale. The project will add seven looping segments to its existing pipeline. The project will add approximately 125 miles of pipeline in Pennsylvania and New Jersey. The segment FERC approved Monday is located in Bradford County, Pennsylvania, and the company hopes to have all segments online by November 1. The Tennessee project is one of many that have been planned for the Marcellus Shale, to support growth in production in the area.

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