Natural Gas

JUMP TO: In The News | Overview | Prices/Supply/Demand | Storage

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Overview:

(For the Week Ending Wednesday, October 29, 2014)

• Spot prices declined at most trading locations across the country during the first half of the report week (Wednesday to Wednesday) amid moderate weather. Some prices increased at the end of the report week, particularly in New England, following a forecast of much colder weather moving into the eastern part of the country. However, the Henry Hub spot price closed yesterday at $3.56/million British thermal units (MMBtu), down 12 cents from $3.68/MMBtu at the beginning of the report week.
• At the New York Mercantile Exchange (Nymex), the November 2014 contract ended the week – and its run as prompt month – at $3.728/MMBtu, an increase of $0.069/MMBtu from the previous Wednesday.
• Working natural gas in storage rose to 3,480 billion cubic feet (Bcf) as of Friday, October 24, according to the U.S. Energy Information Administration (EIA) Weekly Natural Gas Storage Report (WNGSR). A net increase in storage of 87 Bcf for the week resulted in storage levels 7.8% below year-ago levels and 8.2% below the five-year average for this week.
• The total U.S. rotary rig count for the week ending October 24 increased by 9 units to 1,927 units from the previous week, according to data from Baker Hughes Inc. The natural gas rig count increased by 4 to 332 units, while oil rigs increased by 5 to 1,595 units. Natural gas rigs are 44 units below year-ago levels, while oil rig counts are 238 units greater than their levels last year.
• The Mont Belvieu natural gas plant liquids composite price decreased by 3.4% to $8.13/MMBtu for the week of October 20-24. All other product prices also declined. The ethane price decreased 3.7%, while the prices of natural gasoline, propane, butane, and isobutane declined by 0.7%, 5.7%, 2.9%, and 1.5%, respectively.

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Prices/Demand/Supply:

Natural gas prices mixed across the country on cold weather forecasts. Spot prices in most markets declined in trading through Friday of the report week, as weather across most of the United States remained unseasonably warm. Outside of the Northeast, prices on Friday were on average 6% below the previous Wednesday (October 22), with prices in the Northeast lower by 20% than the start of the report week. With a forecast of a cold front moving into the eastern part of the country, prices gained some strength on Wednesday (October 29), particularly at the New England trading points. Despite modest increases in several regions at the end of the report week, the Henry Hub spot price decreased from $3.68/MMBtu last Wednesday to $3.56/MMBtu yesterday, while prices at other trading points in Texas and Louisiana also declined as compared with the previous Wednesday. Prices in the Midwest, Midcontinent, Rockies and West regions increased only slightly over the report week, with most locations registering a 1% to 3% increase.

New England prices post gains. With colder weather moving into the Northeast at the end of the report week, prices at New England markets posted large gains yesterday, increasing by more than $1/MMBtu at Algonquin Citygate and Tennessee Zone 6 200 Line trading points. Prices at Algonquin Citygate, which serves customers in Boston, initially declined to $2.19/MMBtu last Thursday, but rebounded to $2.62/MMBtu by Tuesday, and increased by $1.41/MMBtu in Wednesday’s trading to end the week at $4.03/MMBtu. However, price increases at Algonquin might also be propped up by a planned capacity restriction due to maintenance at the Cromwell compressor station located in Middlesex County, Connecticut, that is scheduled to start today. Prices at Tennessee Zone 6 200 Line, located outside of Connecticut, increased by 51% Wednesday-to-Wednesday, from $2.75/MMBtu to $4.14/MMBtu, while prices at Iroquois Waddington, a delivery point for imports of Canadian gas to New York state, increased by 42 cents to $3.98/MMBtu.

Prices for New York City decline 1% Wednesday-to-Wednesday. Prices at Transco Zone 6 New York, which serves customers in New York City, started the week at $2.68/MMBtu and declined to $2.38/MMBtu on Friday. After increasing to $3.21/MMBtu on Tuesday, and declining again yesterday, prices at that location ended the week at $2.66/MMBtu. This was likely a result of lower demand from gas-fired power generation.

Marcellus prices remain low. Prices at Marcellus trading points fluctuated during the report week, decreasing by Friday in anticipation of lower weekend demand. Prices rebounded on Monday and ended the report week 3% lower on Tennessee Zone 4 Marcellus and Millennium East Pool, at $2.15/MMBtu and $2.34/MMBtu, respectively.

Pipeline constraints to move Marcellus production out of the region remain the main reason behind Marcellus prices trading persistently lower than the Henry Hub. Several new projects are being developed to alleviate the constraints and move Marcellus production to markets in the Northeast, Southeast, and Midwest. Four new and expansion projects totaling 1.1 Bcf/d of capacity were scheduled to come online in October, and three more projects with a combined capacity of 1.3 Bcf/d are scheduled to start up this Saturday, November 1. As the new projects are being commissioned, pipeline capacity constraints, which limit deliverability of Marcellus gas, are expected to be gradually lifted.

Prices increase at the Nymex. The price of the near-month (November 2014) contract increased from $3.659/MMBtu last week to $3.728/MMBtu yesterday, when it expired as prompt month. The December contract, which became the prompt month today, settled yesterday at $3.788. The 12-month strip (the average of the 12 contracts between November 2014 and October 2015) closed the report week at $3.728/MMBtu, up from Wednesday, October 22, when the 12-month strip averaged $3.693.

Increased production drives supply gains. Total U.S. natural gas supply increased by 0.5% from the previous week, according to data from Bentek Energy, as gains in domestic production offset declines in pipeline imports. Dry natural gas production averaged 70.6 Bcf/d, 0.8% greater than last week and 7.4% greater than the same week last year. Net pipeline imports from Canada declined by 4%, led by a 2.8% decline in imports into the Midwest, offsetting an increase of 0.7% in imports to the West. LNG sendout remained at minimal levels.

Demand declines slightly. Total natural gas consumption declined by 0.8%, according to Bentek data, led by decreased consumption in the residential/commercial (1.9%) and industrial (0.8%) sectors. Consumption of natural gas for power generation increased modestly by 0.2%, driven by increases in Texas and the Southeast offsetting declines in the Midwest (13%), Pacific Northwest (14%), and the Rockies (6%). Exports to Mexico increased by 0.5% week-over-week, averaging 1.8 Bcf/d, but were 3.1% above the year-ago level. The first phase of Sierrita Pipeline began service this week with initial capacity of 163 MMcf/d, expanding to 0.8 Bcf/d by 2020. This pipeline, which runs between Tucson and the Mexican border at Sasabe, Arizona, will flow additional U.S. natural gas exports to northwestern Mexico.

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Storage

Net injection moves storage closer to the five-year average. The net injection reported for the week ending October 24 was 87 Bcf, 28 Bcf larger than the five-year average net injection of 59 Bcf and 42 Bcf larger than last year's net injection of 45 Bcf. Working gas inventories totaled 3,480 Bcf, 294 Bcf (7.8%) less than last year at this time and 310 Bcf (8.2%) below the five-year (2009-13) average.

Storage build is larger than expectations. Market expectations called for an average build of 85 Bcf. When the EIA storage report was released at 10:30 a.m., the price for the November natural gas futures contract rose 2 cents to $3.83/MMBtu in trading on the Nymex, but fell back to $3.81 a few minutes later.

There currently is one more week in the injection season, which traditionally occurs April 1 through October 31, although in each of the past 11 years, injections continued into November. EIA forecast on October 7 that the end-of-October working natural gas inventory level would be 3,532 Bcf, which would require an injection of 52 Bcf the last week of October. EIA's forecast for the end-of-October inventory levels are below the five-year (2009-13) average peak storage value of 3,855 Bcf.

So far in the 2014 injection season, the United States has added a record 2,658 Bcf of natural gas to storage. This is significantly higher than the net storage injection of 2,074 over the same period last year, and 1,976 Bcf for these weeks between 2009 and 2013, on average. The average unit value of what storage holders put into storage from April 4 to October 24 was $4.22/MMBtu, 12% higher than the average value for the same 30 weeks last year of $3.76/MMBtu. The highest winter-month Nymex price (for the January 2015 contract) in trading for the week ending on October 24 averaged $3.86/MMBtu. This is 17 cents more than the current front month Nymex contract price for that week. A year ago, the difference was 22 cents/MMBtu.

All regions post larger-than-average builds. The East, West, and Producing regions had net injections of 41 Bcf (12 Bcf larger than its five-year average), 8 Bcf (2 Bcf larger than its five-year average), and 38 Bcf (15 Bcf larger than its five-year average), respectively. Storage levels for all three regions remain below their year-ago and five-year average levels.

Temperatures during the storage report week were about two degrees warmer than the 30-year average. Temperatures in the Lower 48 states averaged 56.7 degrees for the week, 1.7 degrees warmer than the 30-year normal temperature and 2.6 degree warmer than during the same period last year. There were 8 population-weighted cooling degree days during the storage report week, 1 less than the 30-year normal and similar to the same period last year. There were also 66 population-weighted heating degree days during the storage report week, 13 less than the 30-year normal and 18 less than the same period last year.

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See also:

• Natural Gas Analysis Reports
• Short-Term Energy Outlook