U.S. natural gas production relatively flat for the next 2 years

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The U.S. Energy Information Administration's (EIA) most recent monthly production data indicates that total U.S. average daily marketed production reached 70.4 billion cubic feet per day (Bcf/d) in November 2012, 0.4 Bcf/d above the previous month, with upticks in the federal Gulf of Mexico, Oklahoma, Wyoming, and the category for other states, which includes Pennsylvania. Production in the Marcellus Shale areas of Pennsylvania and West Virginia is expected to continue rising, as recently drilled wells become operational. Despite relatively low natural gas prices, Pennsylvania drilling continues at a strong pace as producers target combination oil-and-gas wells. According to EIA’s recently released Short-Term Energy Outlook for February, projected marketed production increases from 69.2 Bcf/d in 2012 to 70.0 Bcf/d in 2013, and remains flat in 2014.

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Prices:

Average natural gas spot prices at major trading hubs decreased between 11 and 15 cents per MMBtu over the report week, with the notable exception of pricing points located in the Northeast, which decreased by about $5.00 per MMBtu for the report week. The winter storm that hit the Northeast over the weekend pushed natural gas prices at Algonquin Citygate and Transco Zone 6 New York above $30 per MMBtu and and $20 per MMBtu, respectively on Friday. With warmer weather, the prices at Algonquin Citygate and Transco Zone 6 New York decreased to $17.85 per MMBtu and $6.10 per MMBtu respectively yesterday. Similarly, warmer weather in most parts of the country this report week compared with the previous week likely contributed to decreases in natural gas spot prices at major trading hubs outside the Northeast.

The Nymex March futures price fell from $3.418 per MMBtu last Wednesday to $3.306 per MMBtu yesterday. During the week, the futures price spread over the Henry Hub daily spot price averaged between -10.5 and 7.9 cents per MMBtu. The 12-Month Strip (average of March 2013 to February 2014 contracts) lost 9 cents per MMBtu, starting at $3.725 per MMBtu last Wednesday and landing at $3.638 per MMBtu yesterday.

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According to estimates from BENTEK Energy Services LLC (Bentek), average natural gas consumption for the nation fell this report week by 8.4 percent over last week’s daily average. Natural gas consumption decreased in all sectors and most notably in the residential/commercial sector, which fell by 13 percent for the report week. This is the result of warmer weather in most parts of the country compared with the previous week.

Bentek estimates that the average daily natural gas supply for this report week increased modestly by 0.4 percent over the previous week’s daily average. Dry natural gas production increased by 0.6 percent above the previous week and sufficiently offset the decrease of natural gas imports, which fell by 3 percent over the same period.

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Storage

Working natural gas in storage decreased to 2,527 Bcf as of Friday, February 8, according to EIA's WNGSR. This represents an implied net withdrawal of 157 Bcf from the previous week. This week's net withdrawal was 3 Bcf larger than the 5-year average net withdrawal of 154 Bcf, and 44 Bcf larger than last year's average net withdrawal of 113 Bcf. Inventories are currently 270 Bcf (9.7 percent) less than last year at this time and 348 Bcf (16.0 percent) greater than the 5-year average of 2,179 Bcf.

All three storage regions posted declines this week. Inventories in the East, West, and Producing regions decreased by 116 Bcf (the 5-year average net withdrawal is 92 Bcf), 8 Bcf (the 5-year average net withdrawal is 18 Bcf), and 33 Bcf (the 5-year average net withdrawal is 44 Bcf), respectively. In the Producing region, working natural gas inventories decreased 6 Bcf (2.5 percent) in salt cavern facilities and decreased 27 Bcf (3.6 percent) in nonsalt cavern facilities.

Temperatures during the storage report week were 0.1 degrees cooler than the 30-year normal temperature and 8.3 degrees cooler than the same period last year. Temperatures in the Lower 48 states averaged 34.4 degrees, compared to 42.7 degrees last year and the 30-year normal of 34.6 degrees. While overall temperatures were close to normal, temperatures varied somewhat across Census divisions. The East North Central Census division in the Midwest and the Middle Atlantic Census division in the Northeast were relatively cool, averaging 4.0 and 3.4 degrees cooler, respectively, than the 30-year normal. The West South Central division in the South and the Mountain Census division in the West were relatively warm, averaging 7.3 and 4.7 degrees warmer, respectively, than the 30-year normal. Heating degree-days nationwide were 0.5 percent above normal and 35.2 percent above last year.

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