Natural Gas

Overview:

(For the Week Ending Wednesday, January 14, 2015)

• Movements in natural gas spot prices were mixed across the country despite persistent cold weather over the report week (Wednesday to Wednesday). The Henry Hub spot rose from $3.07/ MMBtu last Wednesday, January 7, to $3.13/MMBtu yesterday.
• At the New York Mercantile Exchange (Nymex), the February 2015 contract rose over the report period, beginning at $2.871/MMBtu last Wednesday and ending at $3.233/MMBtu yesterday.
• Working natural gas in storage decreased to 2,853 Bcf as of Friday, January 9, according to the U.S. Energy Information Administration (EIA) Weekly Natural Gas Storage Report (WNGSR). A net withdrawal from storage of 236 Bcf for the week resulted in storage levels 11.0% above year-ago levels and 3.8% below the five-year average for this week.
• The total U.S. rotary rig count decreased by 61 units to 1,750 rigs for the week ending January 9, according to data from Baker Hughes Inc. The natural gas rig count increased by 1 unit to 329, while oil rigs decreased by 61 units to 1,421. Most likely related to the sharp decline in crude oil prices, this is the second-largest week-on-week decline in the oil rig count recorded in the Baker Hughes data set, and the largest decline in nearly 25 years. The data set extends back to 1987.
• The Mont Belvieu natural gas plant liquids composite price fell again this week, dropping by 4.9% to $4.90/MMBtu for the week ending January 9. With the continued decline in crude oil prices, NGL prices have been falling as well. All Mont Belvieu NGL spot prices are down this week, with natural gasoline falling 6.8% and isobutane falling 7.2%.

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Prices/Demand/Supply:

Natural gas spot prices mixed with seasonal winter weather. Prices in Louisiana and Texas generally edged upward for the report period, while prices at most other locations fell. Henry Hub began the week at $3.07/MMBtu last Wednesday, and closed yesterday at $3.13/MMBtu. With colder weather, a 24¢ increase in the Henry Hub price on Wednesday drove the overall weekly increase in prices at that location. Prices at most trading locations outside the Gulf Coast states declined slightly, with prices in the Rockies falling by 5¢ to 10¢ for the report week, and prices at the Chicago Citygate declining by 20¢.

Northeastern spot prices moderate. Prices at most locations in the Northeast declined, with price points feeding major consuming areas dropping by significant margins. The Algonquin Citygate price, delivering to Boston, fell by $1.74 to close at $10.80/MMBtu yesterday. Transco Zone 6 NY, delivering to New York City, fell by $9.08, closing at $4.67/MMBtu yesterday. In addition to closer-to-average temperatures at the end of the report week, power loads also moderated at the end of the report week in the Northeast and New England area contributing to this decline.

Marcellus-area prices remain low, some falling to a dollar. Several Marcellus-region prices in the Northeast also continued to decline over the report week. Prices at the Transco-Leidy Line in Pennsylvania fell by 36¢ to $1.01/MMBtu over the report week. Similarly, Tennessee Zone 4 Marcellus prices fell by 27¢, to $1.15/MMBtu yesterday. The Dominion South point strengthened somewhat, with prices at that location rising 26¢ to close at $1.64 yesterday. Very substantial production gains over the past few years, especially compared with last year, combined with constrained pipeline takeaway capacity have boosted the supply of natural gas within the region.

Nymex February contract price rises over the report week. At the New York Mercantile Exchange (Nymex), the February 2015 contract rose significantly Wednesday-to-Wednesday, beginning the report week at $2.871/MMBtu last Wednesday and ending at $3.233/MMBtu yesterday. The 12-month strip, which averages the February 2015 through January 2016 contracts, closed yesterday at $3.183/MMBtu, indicating market expectations of enduring low natural gas prices for the year.

Natural gas liquids prices continue to decline with crude oil. Natural gas liquids prices, which are historically linked to crude oil prices, have been high compared with natural gas prices in recent years. But as global crude oil prices have fallen by more than half since July 2014, natural gas liquids prices have fallen sharply as well. The NGPL composite price averaged just $4.90/MMBtu this week, its lowest level since EIA began producing the series in 2009.

U.S. dry gas production is close to flat during the report week. Dry gas production fell by 0.3% over the report week, according to data from Bentek Energy. Despite reports of production freeze-offs in Louisiana, Texas, Pennsylvania, and Ohio, overall levels of production remain high. Dry gas production was 10% above last year's levels.

Imports increase during the report week, with strong LNG sendout. Imports of natural gas from Canada increased again this week, averaging 7.3 Bcf/d over the report period. Pipeline imports into the Northeast increased by nearly a third, helping to meet demand in the region. Liquefied natural gas (LNG) sendout exceeded 2.2 Bcf last Thursday, including small volumes delivered from the Northeast Gateway floating LNG facility off the coast of Massachusetts, last week, marking its first delivery since March 2010, according to Bentek Energy data. This may have helped moderate prices in the Northeast.

Demand increases overall for the week, moderating after Thursday. U.S. natural gas consumption averaged 111 Bcf/d for the report week, peaking on Thursday at 130 Bcf/d, and declining to the week's minimum of 97 Bcf/d on Monday. All sectors had increases in demand, with natural gas burned in the industrial and electric sectors each increasing by about 3% week-over-week. Gas consumption in the electric sector was mixed regionally, with the Midwest consuming 45% more gas over the period, and the Southwest consuming 17% less. Residential/commercial consumption increased by nearly 11%. Exports to Mexico were also elevated, up 15%. Exports to Mexico are expected to continue to grow in the future with the completion of the NGPL interconnect with the NET Mexico Pipeline.

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Storage

Net withdrawal is larger than the five-year average, but lower than last year's withdrawal. The net withdrawal reported for the week ending January 9 was 236 Bcf, 46 Bcf larger than the five-year average net withdrawal for that week, and 32 Bcf lower than last year's net withdrawal. Working gas inventories as of January 9 totaled 2,853 Bcf, 282 Bcf (11.0%) higher than last year at this time and 113 Bcf (3.8%) lower than the five-year (2010-14) average.

Storage withdrawals are larger than market expectations. Market expectations called for an average pull of 227 Bcf. When the EIA storage report was released at 10:30 a.m. on January 15, the price for the February natural gas futures contract increased 3¢ to $3.31/MMBtu in trading on the Nymex. Within the next hour, prices fluctuated between $3.27 and $3.35/MMBtu.

Stocks in all three regions are above their year-ago levels. Storage levels for the East, West, and Producing regions were above their year-ago levels by 193 Bcf, 32 Bcf, and 58 Bcf, respectively, but they remain below their five-year average levels. The East, West, and Producing regions had net withdrawals of 127 Bcf (19 Bcf higher than its five-year average withdrawal), 28 Bcf (6 Bcf higher), and 81 Bcf (21 Bcf higher), respectively.

Temperatures during the storage report week are cooler than normal. Temperatures in the Lower 48 states averaged 31° for the storage report week, 2.3° cooler than the 30-year normal temperature and 5.1° warmer than the temperatures during the same week last year. There were 240 population-weighted heating degree days during the storage report week, 16 more than the 30-year normal and 35 fewer than during the same period last year.

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See also:

• Natural Gas Analysis Reports
• Short-Term Energy Outlook