Natural Gas

Overview:

(For the Week Ending Wednesday, July 1, 2015)

• Natural gas price movement varied across market locations through the report week (Wednesday, June 24 through Wednesday, July 1). The Henry Hub spot price began the week at $2.77 per million British thermal units (MMBtu) last Wednesday and ended the report week up slightly at $2.81/MMBtu.
• At the New York Mercantile Exchange (Nymex), the July contract began the week at $2.759/MMBtu last Wednesday and settled its position as the near-month contract on Friday at $2.773/MMBtu, when the August contract moved to the near-month position. The August contract gained 1¢ over the report week, moving from $2.782/MMBtu last Wednesday to $2.783/MMBtu yesterday.
• Working natural gas in storage increased to 2,577 Bcf as of Friday, June 26. A net injection into storage of 69 Bcf for the week resulted in storage levels 35% above a year ago and 1% above the five-year average for this week.
• The total oil and natural gas rig count increased by 2 units to 859 for the week ending Friday, June 26, according to data from Baker Hughes Incorporated. Oil rigs decreased by 3, down to 628. Natural gas rigs, however, went up by 5 units to 228. Miscellaneous rigs remained at 3. This was the first time the total rig count has increased since October 2014.
• The natural gas plant liquids composite price at Mont Belvieu, Texas, declined by 1¢ to $4.53/MMBtu for the week ending June 26, a change of 0.3%. Prices of ethane, butane, and isobutane increased by 2.1% (5¢), 2.6% (13¢), and 2.7% (14¢) respectively, while prices of natural gasoline and propane decreased by 0.6% (6¢) and 3.8% (15¢) from the previous week.

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Prices/Demand/Supply:

Natural gas price movements are mixed. Prices at most market locations moved by 3¢ to 5¢ through the report week, with exceptions in the West, where above-average temperatures raised prices by more than 10¢ at some locations, and in the Northeast, where cooler weather brought double-digit price declines. Prices in the Rockies rose by a nickel or less, while at PG&E Citygate, serving Northern California, prices rose by 16¢, from $3.13/MMBtu last Wednesday to $3.29/MMBtu yesterday. Chicago Citygate spot prices increased by 4¢ Wednesday-to-Wednesday, closing yesterday at $2.79/MMBtu, closely tracking Henry Hub prices, which began the report week at $2.77/MMBtu last Wednesday and settled yesterday at $2.81/MMBtu.

Prices for New York reach record low. In the Northeast and Mid-Atlantic regions, prices fluctuated during the report week in response to varying temperatures and reduced maintenance outages. Prices at the Algonquin Citygate, which serves Boston, started the report week at $1.51/MMBtu, falling with mild temperatures to $1.35/MMBtu on Friday, only to return to $1.51/MMBtu on Monday as temperatures rose. With cooler temperatures, prices at Algonquin closed at $1.23/MMBtu yesterday. Similarly, at Transcontinental Pipeline's Zone 6 New York, the spot price started the report week at $2.54/MMBtu, decreased to $1.48/MMBtu on Friday before rebounding on Monday. Prices settled at that location yesterday at $1.24/MMBtu, a record low. The previous record low occurred in October 2014, when prices were $1.37/MMBtu.

Marcellus-area prices remain low. Marcellus-area prices declined in all trading locations through the week by 10% or more. At Tennessee's Zone 4 Marcellus location, prices fell below $1 from $1.12/MMBtu last Wednesday to97¢/MMBtu yesterday. At Dominion South, which serves customers in portions of Pennsylvania, Ohio, Maryland, West Virginia, and Virginia, prices decreased from $1.27/MMBtu to $1.06/MMBtu. On the Transcontinental Leidy Line, prices declined by 20¢ through the report week, from $1.21/MMBtu last Wednesday to $1.01/MMBtu yesterday.

Nymex prices increase. The July near-month contract began the week at $2.759/MMBtu last Wednesday and settled at $2.773/MMBtu on Friday when it expired. The August contract started the report week at $2.782/MMBtu last Wednesday, gaining slightly over the report week to end at $2.783/MMBtu yesterday. The 12-month strip (the average of the August 2015 through July 2016 futures contracts) increased slightly from $2.877/MMBtu last Wednesday to $2.890/MMBtu yesterday.

Supply decreases slightly. Dry natural gas production decreased slightly this week by 0.2%, averaging 72.1 billion cubic feet per day (Bcf/d), 4.8% higher than last year's levels, according to Bentek Energy data. Imports of natural gas from Canada decreased by 0.8% overall, with eastern Canada becoming a net importer of natural gas from the U.S. Northeast. LNG sendout was down 17.1% week-over-week, remaining at minimal levels. Total supply decreased for the week by 0.3%.

Decrease in demand in all sectors. U.S. natural gas consumption was down by 3.2% this week, led by reductions in gas demand for the power sector, which was down 5.5% overall. Cooler temperatures in the Southeast, Northeast, and Midwest (three of the higher consuming regions) drove the overall decrease in natural gas for power generation (power burn). Power burn in those regions fell by 17.4%, 11.6%, and 18.2%, respectively. Power burn increased in all other regions, with consumption in the Southwest up by 14.8% because of above-average temperatures, and in the Pacific Northwest, which is continuing at record levels this week of just over 1.0 Bcf/d. This increase, of 12.7% week-over-week and 272% above the same week last year, is due predominantly to low output of hydroelectric generation in the region. The industrial sector was down 0.3% and the residential/commercial sector was down 1.5%. Exports of natural gas to Mexico continued to increase, 4.8% above last week and 44.4% above exports for the same week in 2014.

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Storage

With warmer weather, injections into storage moderate. The net injection reported for the week ending June 26 was 69 Bcf, down from 75 Bcf the previous week. This compares with the five-year average increase of 75 Bcf for the week and last year's increase of 102 Bcf. Working gas inventories for the storage week totaled 2,577 Bcf, 662 Bcf (35%) higher than last year at this time and 29 Bcf (1%) higher than the five-year (2010-14) average.

Storage injections are in line with market expectations. Market expectations, on average, called for a build of 70 Bcf. When the EIA storage report was released at 10:30 a.m. on July 2, the price for the August natural gas futures contract was essentially flat at about $2.82/MMBtu in Nymex futures trading.

From the week ending April 3 (the beginning of the injection season) through the week ending June 26, net storage injections totaled 1,116 Bcf, or 3% more than the 1,082 Bcf injected during the same 13 weeks in 2014. During these weeks for the years 2010-14, net injection into storage averaged 897 Bcf. The estimated average unit value of the natural gas storage holders put into storage from April 3 to June 26 this year is $2.75/MMBtu, 40% lower than the average value of $4.60/MMBtu for the same 13 weeks last year. The highest winter-month Nymex price (for the January 2016 contract) in trading for the week ending June 26 averaged $3.26/MMBtu. This price is 47¢/MMBtu more than the July Nymex contract price. A year ago, the difference was 14¢/MMBtu, suggesting there is more financial incentive this year to buy and store natural gas in the summer for sale in the winter.

Temperatures during the storage report week warmer than normal. Temperatures in the Lower 48 states averaged 75° Fahrenheit for the storage report week, 3° warmer than the 30-year normal temperature and 2° warmer than the average temperature during the same week last year. There were 75 population-weighted cooling degree days (CDD) this report week, 7 CDD more than the five-year average and 12 CDD more than during this week last year.

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See also:

• Natural Gas Analysis Reports
• Short-Term Energy Outlook