Natural Gas

Overview:

(For the Week Ending Wednesday, March 2, 2016)

• Natural gas prices hit historic lows at many market locations this week (Wednesday, February 24, to Wednesday, March 2). The Henry Hub spot price fell by 20¢, from $1.79/MMBtu last Wednesday to $1.59 yesterday. This is the lowest nominal Henry Hub price since 1998.
• The price of the April 2016 Nymex contract fell by 16¢this week, from $1.834/MMBtu last Wednesday to $1.678 yesterday. The price of the 12-month strip (the average of the 12 futures contracts between April 2016 and March 2017) fell slightly, from $2.206/MMBtu last Wednesday to $2.187 yesterday.
• Net withdrawals from storage totaled 48 Bcf for the week ending February 26. Working gas stocks are 46% and 36% above the year-ago and the five-year (2011-15) averages, respectively.
• The total oil and natural gas rig count declined by 12 units, with 502 units in service for the week ending Friday, February 26, according to data from Baker Hughes Incorporated. The oil rig count decreased by 13 units to 400, and the natural gas rig count rose by 1 unit to 102. This is the eighth consecutive double-digit weekly decline in the total rig count, and the second-lowest recorded natural gas rig count in the Baker Hughes dataset, which goes back to 1987.
• The natural gas plant liquids (NGPL) composite price at Mont Belvieu, Texas, increased by 15¢ to $3.96/MMBtu for the week ending Friday, February 26. The spot prices of all liquids products except ethane increased this week, with natural gasoline rising 8.9%, propane rising 5.8%, butane rising 1.3%, and isobutane rising 1.4%. The spot price of ethane, which is more correlated with natural gas prices than other natural gas liquids, fell by 2.1%, possibly because of recent declines in the natural gas price.

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Prices/Demand/Supply:

Natural gas prices hit historic lows in many locations. Following another relatively mild week of weather, the Henry Hub price decreased significantly again this week. The Henry Hub spot price fell 11% this week, from $1.79/MMBtu last Wednesday to $1.59 yesterday, March 2. On Tuesday it reached an intraweek low of $1.57, which is the lowest nominal Henry Hub price since December 1998. Other major market locations saw similar declines. At the Chicago Citygate, the spot price fell from $1.80/MMBtu last Wednesday to $1.72 yesterday, hitting an intraweek low of $1.68 on Monday. The Chicago Citygate price hasn't been below $1.68 since March 1999. At the SoCal Citygate, prices fell from $1.87/MMBtu last week to $1.71 yesterday, hitting a low of $1.59 on Monday as well. This is the lowest SoCal Citygate price on record.

New England prices rise on Tuesday and Wednesday. Northeast prices were generally low for the report week, but jumped up Tuesday and yesterday, corresponding to movements in temperature. At the Algonquin Citygate, which serves Boston, prices began the week at $1.70/MMBtu, but increased to $2.98 on Tuesday, and peaked at $4.30 yesterday, as temperatures fell Monday through yesterday. At Tennessee Zone 6 200 Line, serving lower New England, prices moved from $1.79/MMBtu last Wednesday to $3.04 on Tuesday and $4.03 yesterday.

Notably, New York City prices did not experience the same price increases. At Transcontinental Pipeline's Zone 6 trading point serving New York City, prices began the week at $1.78/MMBtu, and ended the week down, at $1.71/MMBtu yesterday. Transco's Zone 6 non-New York trading point, which serves Pennsylvania and New Jersey consumers, also followed this price trend.

Marcellus prices down slightly. At Dominion South in northwest Pennsylvania, prices began at $1.05/MMBtu last Wednesday and ended the report week at $1.02 yesterday. On Transco's Leidy Line in northern Pennsylvania, prices mirrored this movement, falling from $1.04/MMBtu last Wednesday to $1.02 yesterday.

Nymex prices fall. The price of the Nymex April 2016 contract fell this week from $1.834/MMBtu last Wednesday to $1.678 yesterday. The price of the 12-month strip (the average of the 12 contracts between April 2016 and March 2017) fell slightly, from $2.206/MMBtu last Wednesday to $2.187 yesterday.

Production falls slightly but remains above year-ago tally. According to data from Bentek, dry natural gas production fell 0.8% from the previous week, but remained 2.6% greater than the same time last year. U.S. imports of natural gas from Canada decreased by 2.3%, driven by a decrease of imports into the Northeast. However, as yesterday's weather turned cold in the Northeast, imports increased from essentially zero on Tuesday to 0.9 Bcf yesterday.

Consumption increases. Despite the weather being generally mild for the period, consumption increased by 2.0% compared with the previous week. The modest increase was driven by the power sector, which consumed 4.7% more natural gas for generation, and the residential sector, which consumed 2.9% more gas for home heating. Exports to Mexico fell by 5% this week.

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Storage

Storage withdrawals are significantly below the five-year average and last year's pulls. Withdrawals from storage for the week ending February 26 totaled 48 Bcf, compared with the five-year (2011-15) average net withdrawal of 137 Bcf and last year's draw of 227 Bcf for the same week.

The storage surplus compared with the five-year average increases for fifth week in a row. Working gas stocks are 666 Bcf above the five-year (2011-15) average. The year-over-year storage surplus increased to 794 Bcf and working gas stocks have exceeded the five-year maximum for 16 out of the last 18 weeks.

This week's net change in working gas stocks is within the range of analyst expectations. Expectations for net withdrawals for the report week generally ranged between 32 to 65 Bcf, with a median of 40 Bcf. Prices of the futures contract on the Nymex for April delivery at the Henry Hub increased about 2¢/MMBtu, with 900 contracts traded at 10:30 a.m., after the release of the Weekly Natural Gas Storage Report.

Working gas stocks could finish the heating season near the record high. If withdrawals follow the five-year average for the remainder of heating season, working gas stocks will total 2,275 Bcf on March 31, the traditional end of the heating season. This would mark only the second time that working gas stocks finished the heating season above 2,000 Bcf. The previous high for the end of the heating season occurred in 2012, when working gas stocks totaled 2,473 Bcf on March 31, 2012.

Temperatures are significantly above normal for the report week. Temperatures in the Lower 48 states averaged 46°F during the storage report week, 7°F above the normal temperature for the week, and 19°F higher than last year at this time. Cumulative heating degree-days are 14% below normal since the beginning of this heating season on November 1, 2015.

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See also:

• Natural Gas Analysis Reports
• Short-Term Energy Outlook