Natural Gas Weekly Update Report Release – December 12, 2013
Natural Gas Weekly Update
for week ending December 11, 2013 | Release Date: December 12, 2013 | Next Release: December 19, 2013
Local distribution companies rely on supplemental fuels, stored LNG to augment gas supplies.
During times of high demand, local distribution companies (LDCs) have several other sources of natural gas supply in addition to what they buy on the spot market or under long-term contracts, have in underground storage, or have otherwise hedged for the winter. LDCs can add other gaseous substances to increase the amount of natural gas available for disposition. Additionally, many LDCs have supplies of liquefied natural gas (LNG) in above-ground storage. While these fuels make up a very small percentage of total consumption, they are important in meeting needle-peak winter demand.
As of the end of 2012, Massachusetts had the largest overall holdings of LNG supplies, at almost 10 billion cubic feet (Bcf). The reasons for this are proximity and necessity. Pipeline infrastructure in New England is insufficient to meet peak demand; during times of cold weather prices frequently spike. On Tuesday, for example, prices at the Algonquin Citygate, which serves Boston consumers, rose to $20.75 per million British thermal unit (MMBtu). This was more than $16/MMBtu greater than the national benchmark price. Massachusetts has an LNG import terminal in Everett, and it is currently one of the few LNG import terminals in the United States that occasionally receives cargoes.
Propane-air is another option LDCs can use to supplement pipeline gas. It is a mixture of propane and air that can be added to the natural gas stream. Propane-air injection accounted for about 0.3 Bcf in 2012, which is less than 1% of total supplies, but still a useful tool for some LDCs when demand spikes. Washington Gas Light Co., which serves customers in Virginia, Maryland and the District of Columbia, reported the largest use of propane-air injections in 2012.
(For the Week Ending Wednesday, December 11, 2013)
- Natural gas spot prices increased substantially at most trading locations in the country. The Henry Hub spot price rose from $3.88/MMBtu last Wednesday, December 4, to $4.24/MMBtu yesterday.
- At the New York Mercantile Exchange, the January 2014 contract rose from $3.960/MMBtu last Wednesday to $4.337/MMBtu yesterday.
- Working natural gas in storage decreased to 3,533 Bcf as of Friday, December 6, according to the U.S. Energy Information Administration (EIA) Weekly Natural Gas Storage Report (WNGSR). A net storage withdrawal of 81 Bcf for the week resulted in storage levels 7.2% below year-ago levels and 3.0% below the 5-year average.
- The natural gas rotary rig count totaled 375 this week, an increase of 8 from the previous week, according to data released December 6 by Baker Hughes Inc. The oil rig count rose by 6 to 1,397 active units. The total rig count is 1,775, up 12 rigs from the previous week, but down 25 from a year ago.
- The weekly average natural gas plant liquids composite price rose 3.0% this week (covering December 2 through December 6) compared to the previous week, and is now at $10.94/MMBtu. Propane drove the increase in the composite price, rising by 6.9% over this period. Ethane and natural gasoline are also up by 1.3% and 1.7%, respectively, and butane and isobutane are both down slightly.
Prices rise substantially in most parts of the country. With cold weather covering most of the United States, increased demand in the residential/commercial sectors, combined with reduced gas production because of well freeze-offs, pushed prices up significantly.
The Henry Hub spot price in Erath, Louisiana, rose from $3.88/MMBtu last Wednesday to $4.24/MMBtu yesterday, an increase of 9%. Northeastern price points saw the most substantial increases, with Boston’s Algonquin Citygate rising from $4.13/MMBtu last Wednesday to $20.40 yesterday. New York City spot gas also increased, with Transco Zone 6-NY rising from $3.85/MMBtu last Wednesday to $8.02/MMBtu on Tuesday, ending at $16.54 yesterday. New pipeline infrastructure into New York City has helped alleviate wintertime gas price spikes compared with Boston to a degree.
The Northwest Sumas spot price serving the Pacific Northwest jumped from $4.87/MMBtu last Thursday to $10.91 last Friday because of regional storage constraints and freeze-offs in Rockies production. The Sumas price dropped back down on Monday and settled at $4.75 yesterday.
Natural gas futures price rises 38 cents/MMBtu over the week. The near-month (January 2014) futures price began the report week at $3.960/MMBtu and ended at $4.337/MMBtu. The 12-month strip (the average of the 12 contracts between January 2014 and December 2014) rose by 26 cents to $4.246/MMBtu yesterday.
Natural gas liquids prices are up week-on-week based on rising propane prices. The weekly average natural gas plant liquids composite price rose 3.0% this week to $10.94/MMBtu. Propane spot prices were the largest contributor to the composite increase, rising by 6.9% because of elevated demand. A wet, record corn harvest (requiring propane for drying), combined with increased propane exports, have caused supply constraints in several midwestern states, which led to rising propane prices.
Gas consumption rises significantly on cold weather. Total natural gas consumption for the report week rose 33.4% relative to last week. Residential/commercial sector and electric sector consumption increased by 46.1% and 40.5%, respectively, for home and building heating. The largest percentage increases in electric-sector consumption of natural gas came from the Midwest and the Midcontinent, up 183% and 155%, respectively. Texas, the second-largest electric-sector gas consuming region, increased by 73% and saw the largest volumetric increase, and the Southeast, which is most reliant on electricity for home-heating, consumed 20% more natural gas to generate electricity.
Total supply declines slightly over the week. Total natural gas supply fell by 0.8% for the report period on lower levels of production. U.S. dry gas production decreased 3.3% this week following well freeze-offs. Wide-spread freeze-offs occurred in the Piceance Basin in Utah and Wyoming, the Uinta Basin in Utah, the San Joaquin Basin in California, and the Williston Basin in North Dakota. This was partly offset by imports from Canada, which were up 30.5% for the report period. The Midwest and Northeast both imported about 1 Bcf/day more natural gas from Canada yesterday compared with last Wednesday. LNG imports, which are a minor part of supply, were also up.
Gas storage sees a larger than average net withdrawal. The net withdrawal reported for the week ending December 6 was 81 Bcf, 73 Bcf larger than last year’s withdrawal of 8 Bcf and 5 Bcf larger than the 5-year average withdrawal of 76 Bcf. Current inventories totaling 3,533 Bcf are 273 Bcf (7.2%) less than last year at this time, and 109 Bcf (3.0%) below the 5-year (2008-12) average.
Net withdrawal is smaller than market expectations of 87 Bcf. When the EIA storage report was released, there was a decrease in prices for natural gas futures on the New York Mercantile Exchange. At 10:30 a.m., the price of the near-month (January 2014) contract fell 2 cents to $4.36/MMBtu, but rose back up a few cents within a few minutes. Prices remained at around $4.38/MMBtu in the hour following trading.
All three regions post decreases this week. All three gas storage regions are now below their year-ago levels, though only the East remains below its 5-year average. The largest withdrawals occurred in the East and West regions, which had net withdrawals of 46 Bcf and 26 Bcf, respectively. The Producing region had a net withdrawal of 9 Bcf.
Temperatures during the storage report week are warmer than normal. Temperatures in the Lower 48 states averaged 41.9 degrees for the week, 1.6 degrees warmer than the 30-year normal temperature and 6.3 degrees cooler than the same period last year.