Natural gas outlook: Warm weather lowers gas demand

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Prices:

The Henry Hub day-ahead price reversed last week’s rebound to decline 17 cents (7.7 percent) over the week. Although there was a temporary halt in the decline on Monday, likely due to the colder weather, the Henry Hub spot price declined overall from $2.21 per MMBtu last Wednesday to $2.04 per MMBtu yesterday. Spot prices at most trading points across the country also increased on Monday, only to subsequently decline for the remainder of the week.

At the NYMEX, the April 2012 contract, which expired yesterday, declined from $2.360 per MMBtu last Wednesday to $2.191 per MMBtu yesterday, a decline of 16.9 cents (7.2 percent). The 12-Month Strip (average of the April 2012 through March 2013 contracts) also declined, losing 11.4 cents (3.9 percent) over the week to close at $2.809 per MMBtu. The May contract, which moves into the near-month position today, declined from $2.454 per MMBtu last Wednesday to $2.282 per MMBtu yesterday.

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Prices declined at almost all downstream trading locations over the week as warmer-than-normal temperatures were experienced across most of the country. Monday was an exception to the otherwise steady decline, as prices rose generally across the board. Particularly high spot price increases were seen Monday in the Northeast and Southern California, as colder than normal temperatures began moving into these areas. The colder temperatures were short-lived, and prices declined again on Tuesday. Spot prices at the Algonquin Citygate trading point for delivery into Boston, started the week at $2.31 per MMBtu, declined to $2.18 per MMBtu on Friday, jumped to $2.85per MMBtu on Monday, and then fell back to close the report week at $2.59 per MMBtu (up 12.1 percent for the week). Following a similar pattern, the Southern California Border Average price began the week at $2.44 per MMBtu, declined to $2.20 per MMBtu on Friday, jumped to $2.44 per MMBtu on Monday, and subsequently retreated to close yesterday at $2.32 per MMBtu (down 4.9 percent over the week).

U.S. demand increased over the report week, with overall consumption increasing by over 10 percent on Monday from the previous day in response to the colder weather. Consumption remained elevated on Tuesday before falling off on Wednesday. According to estimates from Bentek,U.S. natural gas consumption increased by 2.4 percent from last week. The residential/commercial sector showed the highest increase, with a 10.4 percent gain over the report week. The industrial sector gained 1.3 percent, while the power sector posted a 3.2 percent decline.

Increases in dry gas production, imports, LNG sendout, contributed to an increase in total supply. According to Bentek estimates, the week’s natural gas supply showed a 0.7 percent increase from last week’s level. Domestic dry gas production remained relatively level over the week, posting a 0.2 percent increase over the previous week and is 4.9 percent above this time last year. The increase in this week’s natural gas supply was augmented by a 6.5 percent increase in imports from Canada and, although volumetrically small, a 20.1 percent increase in LNG imports. Imports from Canada are 16.5 percent below year-ago volumes for the same week, and LNG imports are 41.9 percent below year-ago levels.

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Storage

Working natural gas in storage increased to 2,437 Bcf as of Friday, March 23, according to EIA's WNGSR. This represents an increase of 57 Bcf from the previous week. The implied net injection for the same week last year was 7 Bcf, while on average over the last 5 years there were implied net injections of 8 Bcf. Inventories in both the East and Producing Regions posted increases of 25 Bcf (a 2.4 percent increase from the previous week’s level) and 34 Bcf (a 3.5 percent increase), respectively. Stocks in the West Region posted a slight decline of 2 Bcf.

Stocks were 900 Bcf (58.6 percent) higher than the 5-year average level of 1,537 Bcf and 816 Bcf (50.3 percent) higher than last year at this time. Inventories in both the Producing and East Regions are over 60 percent above their 5-year average, by 392 Bcf and 403 Bcf, respectively. The West Region inventories are also above their 5-year averages by 104 Bcf (43.3 percent).

Beginning with the report period for the week ending March 16, 2012, the WNGSR has provided new breakouts for inventory levels at salt cavern and nonsalt cavern facilities in the Producing Region. Working gas stocks in the Producing Region, for the week ending March 23, 2012, totaled 1,019 Bcf, with 249 Bcf in salt cavern facilities and 770 Bcf in nonsalt cavern facilities. Working gas stocks increased 17 Bcf in the salt cavern facilities and increased 18 Bcf in the nonsalt cavern facilities, since March 16. An historical series of the salt and nonsalt subtotals of the Producing Region, dating back to January 7, 2011, is available for download at: wngsr_producing_region_salt.xls. This new breakout of regional natural gas stocks should help analysts assess more comprehensively the relationship between inventory changes and types of storage facilities.

Temperatures during the week ending March 22 were 14.1 degrees warmer than the 30-year normal temperature and 8.9 degrees warmer than the same period last year. The average temperature nationwide during this period was the warmest in March in the last 5 years according to data from the National Oceanic and Atmospheric Administration. During the week all regions with the exception of the Pacific Region in the West were warmer than normal. The East North Central and the West North Central Regions in the Midwest were particularly warm, averaging 26.9 and 22.6 degrees warmer than normal, respectively. The average temperature in the Pacific Region in the West was cool, averaging 3.4 degrees cooler than normal. Heating degree-days nationwide were down 64.5 percent from normal and 53.3 percent from last year.

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