Natural Gas Weekly Update for week ending November 27, 2013
In the News:
Robust natural gas supply narrows spread between futures, spot prices
Colder weather helped raise the price of the front-month natural gas futures contract, which increased on eight consecutive trading days from November 19 to December 2, with the price reaching $3.988/million British thermal units (MMBtu), its highest level since June 5, 2013. Despite this rally in prices, futures prices for the rest of the month remained relatively low. There has also been a reduction in seasonal price variations, seen when comparing the differences between the natural gas front-month contract and day-ahead spot prices. The premium that the winter months futures contracts have over spot prices has diminished considerably in recent years.
For example, the average difference between the price of the near-month contract for delivery of natural gas and the day-ahead spot price at the Henry Hub in Erath, Louisiana, averaged 2 cents/MMBtu in November 2013, according to EIA calculations with data from SNL Energy. This is well below the 18-cent difference in November 2012, and significantly lower than the difference of 53 cents/MMBtu in November 2010. In addition, the front-month contract settled below the day-ahead spot price on eight separate trading days this November, more than the combined six separate trading days for November 2010, November 2011 and November 2012 (see table below).
December and January futures prices traditionally have increased on the expectation that the supply-demand balance for natural gas would become significantly tighter in December and January, when natural gas demand for residential and commercial heating increases. However, the trend of higher overall production and increased November working inventories has lowered market expectations for December and January price spikes.
The U.S. Energy Information Administration's (EIA) Short-Term Energy Outlook (STEO) forecasts that total dry natural gas production in the United States this winter (November 2013 to March 2014) will reach 67.4 billion cubic feet per day (Bcf/d), a 2% increase over last winter and 12% more than the winter of 2010-11. Additionally, working inventories reached their 2013 peak on November 8, and entered the withdrawal season with the fifth-highest annual level recorded by EIA. This is in keeping with a recent trend of high inventories at the start of the winter withdrawal season; stocks have exceeded 3.8 trillion cubic feet each fall since 2009.
Modest prices expected for the near term reflect robust supply more than concern over rising demand this winter. STEO forecasts flat total natural gas consumption this winter compared with last winter's levels, with residential and commercial consumption declining by 1%, electric power sector consumption declining by 3%, and industrial consumption rising by 3%.
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(For the Week Ending Wednesday, December 4, 2013)
- Natural gas spot prices increased slightly at most trading locations in the country. The Henry Hub spot price rose from $3.79/MMBtu last Wednesday, November 27, to $3.88/MMBtu yesterday.
- At the New York Mercantile Exchange, the January 2014 contract rose from $3.895/MMBtu last Wednesday to $3.960/MMBtu yesterday.
- Working natural gas in storage decreased to 3,614 Bcf as of Friday, November 29, according to the EIA Weekly Natural Gas Storage Report (WNGSR). Stocks declined by a record 162 Bcf for the week. This is the largest November withdrawal since EIA started publishing weekly storage data in 1994. Storage levels are 5.2% below year-ago levels and 2.8% below the 5-year average.
- The Baker Hughes natural gas rotary rig count totaled 367 this week, a decrease of 2 from the previous week, according to data released November 27 by Baker Hughes Inc. The oil rig count rose by 4 to 1,391 active units. The total rig count is 1,763, up 2 rigs from the previous week and down 48 from a year ago.
- The weekly average natural gas plant liquids composite price fell this week (covering November 25 through November 27) compared to the previous week by 1.2%, and is now at $10.62/MMBtu. Ethane and natural gasoline rose by 3.1% and 0.2%, respectively, while propane, isobutane, and Butane fell between 2.4% and 3.1%.
Prices rose in most parts of the country, with the exception of the price decrease in the Northeast. As cold weather took hold in the western United States, prices at locations in that area increased. Below-zero temperatures hit the Rockies on Wednesday and prices at Opal in Wyoming increased 20 cents/ MMBtu to $4.18/MMBtu from Tuesday. Generally, prices in the western United States increased between 2 cents/MMBtu and 62 cents/MMBtu from last Wednesday. The Henry Hub price rose slightly from $3.79/MMBtu last Wednesday to $3.88/MMbtu yesterday.
Warmer weather in the eastern United States, following unseasonably cold weather last week, led to price decreases at most trading points. Although price decreases at most locations in the Northeast were moderate, prices at the Algonquin Citygate, which serves Boston consumers, fell by $1.26/MMBtu to $4.13/MMBtu yesterday. The average price for the Northeast decreased by 7 cents/MMBtu from last Wednesday to $3.78/MMbtu yesterday.
Gas consumption falls despite cold in the Rockies, Southwest, and Pacific Northwest. Total natural gas consumption for the report week fell 10.5%, representing overall week-over-week declines in the industrial, residential/commercial, and power sectors. Natural gas consumption for power generation, which decreased in all parts of the country, fell the most, by 16.6% from the previous week.
Total supply declined 0.7% over the week. Total U.S. dry gas production stayed relatively flat week-over-week but remained 2.7% greater than that over the same period last year. Imports from Canada declined 9.5%, and LNG sendout remained at minimal levels.
Natural gas futures price rises 7 cents/MMBtu over the week. The near-month (January 2014) futures price began the week at $3.895/MMBtu and ended at $3.960/MMBtu. The 12-month strip (the average of the 12 contracts between January 2014 and December 2014) rose by 7 cents to $3.989/MMBtu yesterday.
Gas storage sees record high November net withdrawal. The net withdrawal reported this week was 162 Bcf, 100 Bcf larger than last year's withdrawal of 62 Bcf and 121 Bcf larger than the 5-year average withdrawal of 41 Bcf. Current inventories totaling 3,614 Bcf are 200 Bcf (5.2%) less than last year at this time, and 104 Bcf (2.7%) below the 5-year (2008-12) average.
Net withdrawal significantly larger than market expectations. When the EIA storage report was released, there was an increase 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 rose 7 cents to $4.09/MMBtu and remained near that level 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 Producing regions, which had net withdrawals of 78 Bcf and 68 Bcf, respectively.
Significantly cooler weather prompts large storage withdrawal. Temperatures in the Lower 48 states averaged 36.7 degrees for the week, 5.7 degrees cooler than the 30-year normal temperature and 7.4 degrees cooler than the same period last year.