GAS PRICES ARE LOWER
Winter natural gas futures prices are significantly lower than previous years
The winter natural gas futures strip, the four contracts from December 2015 through March 2016, averaged $2.419 per million British thermal units (MMBtu) over the report week (Wednesday, October 28, through Wednesday, November 4). This is nearly 40% lower than the five-year average, and one-third lower than the five-year minimum in trading on the New York Mercantile Exchange (Nymex). There are several factors driving these lower prices, including:
Year-over-year production growth: As reported in EIA's recently released Natural Gas Monthly, in August dry natural gas production reached record high levels for any month since EIA began reporting that data series. Dry natural gas production for August averaged 76.5 billion cubic feet a day (Bcf/d), a 7% increase over August 2014. Although EIA's latest Short-Term Energy Outlook is showing a slowdown in month-to-month production growth, compared to the previous year, average dry natural gas production in December to March is forecast to reach levels around 2% over the previous year's levels for that time period.
Record storage levels: After surpassing the five-year average on May 29, natural gas storage as of October 30 was 3,929 Bcf, matching the record level reported by EIA's Weekly Natural Gas Storage Report on November 2, 2012. Injections totaled 2,453 Bcf from April 3 to October 30, 15% larger than the five-year average, but 280 Bcf short of last year's record injection over the same time period.
Forecast for relatively warm weather: The U.S. Winter Outlook, released October 15 by the National Oceanic and Atmospheric Administration (NOAA), reflects an El Niño event, which will likely bring warmer-than-normal temperatures across the northern and western United States. Based on forecasts for warmer-than-normal temperatures, EIA's Winter Fuels Outlook, released October 6, forecasts a 6% decline in residential natural gas consumption this winter. With nearly half of all U.S. households heating with natural gas, residential consumption, the sector most responsive to winter temperatures, represents over 25% of the total natural gas consumption over November 2015 through March 2016. Total U.S. consumption is forecast to average 90 Bcf/d over that time period.
(For the Week Ending Wednesday, November 4, 2015)
- Warm weather and strong supply led to declines in natural gas prices at most locations east of the Rockies. The Henry Hub spot price fell from $2.10 per million British thermal units (MMBtu) last Wednesday, October 28, to $2.02/MMBtu yesterday, November 4. The Henry Hub spot price dropped to three-year lows midweek, falling below $2/MMBtu.
- At the New York Mercantile Exchange, the December 2015 contract fell from $2.298/MMBtu last Wednesday to $2.262/MMBtu yesterday.
- Working natural gas in storage increased by 52 Bcf, rising to 3,929 Bcf as of Friday, October 30. The net injection into storage resulted in storage levels 10% above a year ago and 4% above the five-year average for this week.
- The total rig count fell by 12 units to 775 as of Friday, October 30, according to data provided by Baker Hughes Incorporated. This is 60% lower than year-ago levels. Oil rigs declined by 16 to 578 units and natural gas rigs rose by 4 to 197 units.
- The natural gas plant liquids composite price at Mont Belvieu, Texas, rose slightly to $4.86/MMBtu for the week ending Friday, October 30. The prices of natural gasoline, butane, and isobutane rose 2.2%, 3.0%, and 3.2%, respectively, while the prices of propane and ethane fell by 0.4% and 3.2%, respectively.
Natural gas spot prices fall. Henry Hub spot prices dropped to three-year lows this report week, settling below the $2/MMBtu threshold on trading days Friday, Monday, and Tuesday. At the end of the report week, Henry Hub prices increased to offset some of its losses, settling at $2.02/MMBtu for a net loss of 8cent over the report week. Prices posted declines in trading at most points in the United States. At the Chicago Citygate, prices posted a decline from $2.44/MMBtu last Wednesday to $2.19/MMBtu yesterday. Like the Henry Hub spot price, the Chicago price fell below $2/MMBtu midweek before increasing at the end of the week. Year-over-year growth in production, strong storage levels, and mild temperatures are the factors driving the low-price environment.
Prices mixed in the Rockies and points west. At the PG&E Citygate in Northern California, prices rose 1% from $2.65/MMBtu last Wednesday to $2.68/MMBtu yesterday, though prices fell in Southern California. At several points in the Rockies and Pacific Northwest, prices rose slightly.
Northeast prices drop. In the Northeast market areas, prices posted large declines as cold weather in the beginning of the report week eased. At the Algonquin Citygate, which serves Boston area consumers, prices declined from $6.25/MMBtu last Wednesday to $3.95/MMBtu yesterday, declining all five consecutive days of the report week. In New York, prices at Transcontinental Pipeline's Zone 6 point fell from $2.10/MMBtu last Wednesday to $1.36/MMBtu yesterday.
Marcellus prices down. Prices at trading locations in the Marcellus Shale declined this week, with prices at many locations settling at less than $1/MMBtu. At Tennessee's Zone 4 Marcellus trading point, prices began the week at $1.04/MMBtu last Wednesday and ended the week at 76¢/MMBtu. On Transco's Leidy Line, prices fell from $1.06/MMBtu to 87¢/MMBtu from Wednesday to Wednesday.
Nymex prices drop. The December 2015 contract, which moved into the front month-position last week, fell from $2.298/MMBtu last Wednesday to $2.262/MMBtu yesterday. The price of the 12-month strip (the 12 contracts between December 2015 and January 2016) fell slightly from $2.511/MMBtu last Wednesday to $2.502/MMBtu yesterday.
Supply declines. Supply declined week over week, with dry production falling 0.4% from the previous week. Imports of natural gas from Canada fell 10.4%, with the largest declines occurring in imports to the Midwest. Liquefied natural gas imports rose by 1.5%, but remained at very low levels.
Demand increases slightly. U.S. consumption rose 1.4% week over week. Consumption of natural gas for electric power generation fell 3.1%, while industrial consumption rose 1.0%. Residential and commercial consumption rose 7.6% week over week, but dropped off midweek, with stronger demand in the early part of the week when temperatures were lower.
Working gas stocks equal highest recorded levels. Despite the below-average weekly inventory build, working gas climbed to tie the record high of 3,929 Bcf reported for the week ending November 2, 2012. Working gas stocks appear poised to establish an all-time record high in next week's storage report if working gas stocks increase during the coming week, as typically occurs in early November. This year's high injections have been driven by builds in the Producing region, particularly in the Producing salt region, which had never been higher than 332 Bcf before this year. Both the salt and nonsalt Producing regions have established new all-time highs, 371 Bcf and 997 Bcf, respectively. Working gas stocks in both the East and West regions remain off the pace established in 2012.
Net storage injection is lower than both the five-year average and last year's builds. The net injection reported for the week ending October 30 was 52 Bcf, down from 63 Bcf the previous week. This injection compares with the five-year average increase of 58 Bcf for the week and last year's increase of 90 Bcf. Working gas inventories for the report week were 371 Bcf (10%) higher than last year at this time and 147 Bcf (4%) higher than the five-year (2010-14) average.
Storage injections are smaller than market expectations. Market expectations, on average, called for a build of 58 Bcf for this week. When the EIA storage report was released at 10:30 a.m. on November 5, the December Nymex price rose about 2¢, to $2.33/MMBtu, and oscillated between $2.33 and $2.35/MMBtu in the following hour.
From April 3 (the beginning of the injection season) through October 30, net storage injections totaled 2,453 Bcf, or 280 Bcf lower than the 2,733 Bcf injected during the same 30 weeks in 2014. During these weeks for the years 2010-14, net injections into storage averaged 2,133 Bcf. The estimated average unit value of the natural gas put into storage from April 3 to October 30 this year is $2.69/MMBtu, 36% lower than the average value of $4.20/MMBtu for the same 31 weeks last year.
Temperatures during the storage report week are warmer than normal. Temperatures in the Lower 48 states averaged 57° for the storage report week, 4° warmer than the 30-year normal temperature and 1° cooler than the average temperature during the same week last year.