Natural Gas

Overview:

(For the Week Ending Wednesday, February 26, 2014)

• Natural gas spot prices generally increased during most of the report week, but fell sharply on Tuesday and Wednesday. The Henry Hub spot price closed down at $4.84/MMBtu on Wednesday, February 26, $1.13/MMBtu below last Wednesday's price. Prices at major Northern population centers increased more consistently throughout the report period.
• Prices at the New York Mercantile Exchange (Nymex) fell on Monday despite increasingly cold weather, after increasing during most of the first half of the report week (Wednesday to Wednesday). The March contract price began last Wednesday at $6.149/MMBtu and settled yesterday at $4.855/MMBtu with the expiration of the March contract.
• • Working natural gas in storage decreased to 1,348 billion cubic feet (Bcf) as of Friday, February 21, according to the U.S. Energy Information Administration (EIA) Weekly Natural Gas Storage Report (WNGSR). A net storage withdrawal of 95 Bcf for the week resulted in storage levels 40.2% below year-ago levels and 34.5% below the 5-year average.
• The total rig count rose by 7 from the previous week, up 10 from the same time last year, according to data released by Baker Hughes Inc. The natural gas rotary rig count was 342 as of February 21, an increase of 5 relative to last week, but 86 below last year's figure. The gas rig count has generally been declining since the start of the year. The oil rig count was 1,425, an increase of 2 from the previous week and 96 rigs greater than the same time last year.
• The weekly average natural gas plant liquids composite price fell by 2.1% this week (covering February 17 through February 21) compared to the previous week, and is now at $12.06/MMBtu. This decrease was driven by spot propane at Mont Belvieu, which dropped 7.7% as weather moderated over the previous week, reducing demand for home heating fuel. The ethane and natural gasoline spot prices at Mont Belvieu increased by 3.9% and 3.0%, respectively.

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Prices/Demand/Supply:

Henry Hub prices rise last week, fall this week. The Henry Hub spot price increased during the first half of the report week, likely in anticipation of cooler weather, and then decreased at the end of the report week. On Tuesday, the Henry Hub price decreased by 93 cents to $5.25/MMBtu, a day after a large decline in the near-month Nymex price. Aside from the large price movements earlier this month, the Henry Hub price has not moved so sharply since January 2010. It closed at $4.84/MMBtu yesterday, down $1.13/MMBtu over the report week. Many other spot prices saw a similar pattern, including Opal in Wyoming, Malin in Northern California, and Katy in East Texas.

Spot points delivering to major Northern population centers saw prices increase more consistently across the report week with the progressive decline in temperatures. The Algonquin Citygate price, delivering to Boston, began the week at $13.83/MMBtu last Wednesday and closed at $29.41/MMBtu yesterday. The Transco Zone-6 NY price, delivering to New York City, rose from $6.10/MMBtu last Wednesday to $24.44/MMBtu yesterday. Chicago Citygate and trading points all across the Midwest saw similarly elevated prices and comparable price movements.

Futures prices fall sharply on Monday and Tuesday, closing down on Wednesday. The near-month futures price for March delivery began the week at $6.149/MMBtu last Wednesday, falling sharply Monday. Despite expectations for cooler-than-average March weather, the futures price fell by $0.690 between Friday and Monday, closing at $5.445/MMBtu on Monday, and continuing to fall sharply on Tuesday. The price decrease from Friday to Monday was the largest near-month futures price movement in more than four years. The March contract continued to decline yesterday, settling at $4.855/MMBtu as the March futures contract expired, giving way to the April contract.

This week's futures price movements downward are inconsistent with falling temperatures Friday through Wednesday. This may be attributed to activity surrounding yesterday's expiration of the March futures contract. Expectations for gas markets may have changed with revisions to near-term weather forecasts (despite the fact that they are still calling for below-average temperatures), and possibly with overall market realignment because of rising production and low-but-adequate storage.

Consumption increases throughout the report week. Consumption increased consistently through the report week as last Thursday's moderate weather became progressively colder. Yesterday was the coldest day of the report week, with total consumption reaching 108.4 Bcf/d. Even so, the average consumption this report week, at 83.7 Bcf/d, was below last week's level by 3.5 Bcf/d (4%).

The largest volumetric drop in consumption came from the residential/commercial sector, which fell week-on-week by 2.1 Bcf/d (4.7%), to 42.6 Bcf/d. Natural gas consumption in the power sector (power burn) fell by a smaller volume but a larger share, decreasing by 1.0 Bcf/d, or 5.9%. Industrial consumption decreased by 0.3 Bcf/d (1.3%), and natural gas exports to Mexico were essentially flat, rising by 0.2%.

Power burn is down in most regions, up in the West. Power burn fell nationally, driven by decreases in the Southeast and Northeast. The Southeast consumed 0.5 Bcf/d (10.3%) less gas for electric generation, followed by the Northeast which consumed 0.4 (11.4%) Bcf/d less gas.

Though nationally this report week was warmer than last, the West Coast saw slightly cooler temperatures on average, particularly in Oregon and Southern California. Power burn in the Southwest increased by 0.1 Bcf/d (4.2%) to an average of 3.1 Bcf/d, and power burn in the Pacific Northwest increased by 0.03 Bcf/d (4.7%) to 0.6 Bcf/d.

Supply is flat on rising production and falling imports. Overall natural gas supply remained essentially flat, increasing by 0.1% over last week. Natural gas dry production rose for the second consecutive week, increasing by 1.0 Bcf/d (1.5%). Dry gas production is currently above year-ago levels by 2.7 Bcf/d (4.3%). Supplies from Canada and from overseas as liquefied natural gas (LNG) decreased for the week, offsetting increases in production, as a 0.8 Bcf/d drop in natural gas imported from Canada and a 0.1 Bcf/d drop in LNG sendout offset the rise in dry production.

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Storage

Warmer weather brings a smaller-than-average net withdrawal. The net withdrawal reported for the week ending February 21 was 95 Bcf, 30 Bcf smaller than the 5-year average of 125 Bcf and 70 Bcf smaller than last year's net withdrawal of 165 Bcf. Working gas inventories totaled 1,348 Bcf, 905 Bcf (40.2%) less than last year at this time, 711 Bcf (34.5%) below the 5-year (2009-13) average, and 446 Bcf (24.9%) below the 5-year minimum.

Storage draw falls below market expectations of 105 Bcf. When the EIA storage report was released at 10:30 a.m., the price for the April natural gas futures contract increased 5 cents to $4.54/MMBtu on the New York Mercantile Exchange (Nymex). Prices fell back to $4.51 in the hour following the release.

Net withdrawals in all three regions smaller than average. The East, West, and Producing regions had net withdrawals of 78 Bcf, 12 Bcf, and 5 Bcf, respectively. Storage levels for all three storage regions remain below their year-ago, 5-year average levels, and 5-year minimums.

Temperatures during the storage report week warmer than normal. Temperatures in the Lower 48 states averaged 39.3 degrees for the week, 1.7 degrees warmer than the 30-year normal temperature and 3.4 degrees warmer than during the same period last year.

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See also:

• Natural Gas Analysis Reports
• Short-Term Energy Outlook