The April data are showing more imports of natural gas in the form of
LNG. However, until we have a few more months of data the impact
on domestic prices will remain uncertain. In April according to the
latest EIA numbers LNG imports averaged $4.20 / mcf down $2.14 from
March. In contrast the average wellhead price of natural gas only
dropped $0.29 from $3.72 to $3.42. The benchmark gas at the Henry Hub
was down $0.44 to $3.40 / MCF ($3.50 / mmbtu). Gas
imported from Egypt, Nigeria and Norway was $3.90, $3.56 and $3.92
respectively. The three countries represented almost two thirds of LNG
imports. The remainder came from Trinidad at $4.85 / MCF. Except for
Trinidad LNG import prices were competitive with domestic production.
For the month of April LNG imports were up 0.85 Bcf / day to 1.87 Bcf / day.
Egypt, Nigeria and Norway made up 0.73 Bcf / day of the increase and
64% of total imports. We will need several more months of data to
be certain, but the April numbers indicate that LNG is available under
$4.00 delivered to the U.S. At 1.87 Bcf / day LNG imports are well
under the daily sendout capacity of 8.97 Bcf/day for all operable LNG
import facilities. As long as LNG is available at these
prices and LNG imports are under 7-8 Bcf per day this could put a $4.00
cap on prices. Once imports approach LNG throughput capacity
they would no longer cap prices.
Imports by pipeline from Canada were down 0.91 Bcf/day in April wiping
out gain from LNG. The 3-year decline in Canadian gas
drilling activity leads us to conclude that net imports from Canada
continue on a downward path.
Lower drilling in the U.S. will result in
lower production, but there is spare production capacity
because of the high drilling rate for the last three years.
companies have announced that they have throttled back on production
delayed putting new wells on stream until prices are more favorable.
outlook for production from wells drilled this year is not quite as
bleak as the drop in gas rig counts indicates. On the right we
see horizontal drilling is down from the peak but not by nearly the
percentage of overall drilling. Since we can expect 3-5 times the
production from a horizontal well, the number of horizontal rigs
understates the true impact on production.
It is likely there will be an impact from LNG this summer and we do not
expect the lower domestic and Canadian supply to impact prices
until the first half of next year and more likely the second quarter.
have a problem with the futures market's perception of prices and doubt
the March price of $5.50 per mmbtu. We think $5.00 will be closer to
Bright spot for demand? While the 12 months ended April show gas demand
by the power sector down 1.43 Bcf/day at 17.34, the latest
Electric Power Flash report for May indicates that natural gas
consumption by the power sector was 17.82 Bcf / day. That is up
1.52 Bcf/day (9.3%) from May, 2008. This may be due to the warmer
weather this year causing an increase in demand for peaking
power. Cooling degree days for May were 109 vs. 91 a year ago.
Total electric power generation was down 4.2% from last year and power
generation from coal was off 14.7%.
Storage levels are well above
normal, but not evenly distributed. The East Consuming Region is 118
(9.1%) higher than average while the Producing Region is up 246 Bcf
(31.3%) and the West Consuming Region is 91 Bcf (25.9%) higher than
normal. Consumers (utilities) may be reticent to purchase gas too
early. they may be waiting for the price to fall even lower. In any
case, they have more gas than is normal for this time of year and it is
unlikely that demand will be higher this winter.
gas spot prices averaged $3.28 / mmbtu or 31.1% of crude
compared to 31.0% the previous week and 48.3% a year ago. For the
next few months the
gas price will
be influenced by the demand for air conditioning, threats of
hurricanes, the weak economy and oil prices, if they collapse. The low
indicates gas prices may
come under upward pressure from lower production capacity late in the
year, but more likely sometime next year.
Last week's injection was 90 Bcf and is 3 Bcf greater than the
injection to storage at this time of year.
levels are 456
Bcf (18.8%) greater
five-year average, and 547 Bcf (24.8%) more than last year.
At the current crude oil
price and storage level gas prices typically range
between 45%-65% of the price of crude oil. However, the two
not linked at this storage level and the current price of crude has
little influence on gas prices.
The 90 Bcf injection
for the week of July 10 was 3 Bcf greater than the normal 93
For the week of the 10th there were 60 60
degree days which is average and one less than last year.
heating degree days which is 2 above normal and 2 greater than
The North was cooler than normal. (See NOAA
temperature anomaly map.)
forecast for 73 cooling degree days is 8 less than normal and last
week was 70 which is 6 CDD less than the norm. The 6-10
day forecast is for cooler than normal weather west of the Rocky
Mountains. The 8-14
day forecast is for warmer than normal weather in the Northwest, Mid
Atlantic and Southeast Regions. Cooler than normal temps are
expected in a band from Southern California to the Northeast.
storage level in the Eastern Consuming Region is 13.3% above
our 5-year average, the Producing Region is 39.1% above
norm, and the Western Region is 36.3% above normal.
Producing Region at 1,032 Bcf is 290 Bcf above last year. Storage
Eastern Consuming Region at 1,411 is 166 Bcf higher than last
Region is 118 Bcf higher than last year at 443 Bcf.
year, with 574 Bcf less gas in storage, natural gas prices were 48.3%
of oil on a Btu
basis compared to 31.0% last week and 31.1% this week. This week's
natural gas spot price up
$0.002 /MMBtu while oil decreased $0.22 per barrel ($0.038/MMBtu) decreasing the spread
between oil and gas prices by $0.040 MMBtu. Natural gas prices
averaged $3.28 which is $7.98 lower than last year.
| Weekly Average Price
|Gas % Oil
red line in the
graph shows the difference between the
current storage level and the previous five years. The black line is
natural gas price as a percent of oil price on a Btu basis.
current storage relative to the
norm historically determines most of the gas-oil price relationship,
and rumors of weather can overwhelm the normal storage-price behavior.
in New York Harbor at $1.27 per
gallon ($8.49/mmbtu) is not competitive
natural gas for most users with fuel switching capability. For
the last 4-week period Residual
fuel oil use was 628,000 barrels per day compared to 687,000 a year
the Eastern Consuming
region, gas in storage is 9.1% above the 5-year average; the Western
Region is 25.9% above normal; and the Producing Region is 31.3% above
average. The Producing Region is 39.1% above last
year's storage level, the Eastern Region is 13.3% above and the
is up 36.3%.
storage of 2,886 Bcf is 456
Bcf (18.8%) above
the 5-year average and 574 Bcf (24.8%) higher than last year.
storage at 1,411
Bcf is 118 Bcf (9.1%) above the 5-year average and 166 Bcf (13.3%) above
last year. Storage in this region was up 62 Bcf compared to the
normal 60 Bcf injection.
was a 19 Bcf injection to storage
in the Producing
Region which is equal to the 5-year average.
Producing Region now
storage 246 Bcf (31.3%) above the 5-year average and 290 Bcf
of 443 Bcf in the
West Consuming Region is 91 Bcf (25.9%) above the 5-year
(45.3%) higher than last year. There was a 12 Bcf injection which is
equal to the 5-year average.
barely high enough justify the current level of exploration and gas rig
has may not have bottomed as we expected. Gas
activity was down 7 this
week to 665 and is 869 rigs lower than last year. It is 37
rigs (58.6%) lower than the historic high of 1,606 in the second week
Natural gas drilling activity just above the lowest level since early
2002. See Gas
Rig Count. and Rigs
are six items that
will determine natural gas price this summer: (1) crude
oil price* (fuel
(2) actual and forecast temperature, (3)
the level of U.S. and Canadian drilling activity, and (4) planned and
outages at nuclear power plants, (5) industrial activity, and (6)
Until storage levels return to normal oil prices will have little
is insufficient production, import or pipeline capacity to support
consumption and 2.0 - 2.5 TCF must be added to storage each year
the winter heating season begins.
|For the latest Gulf of
statistics are go to:
Click on map for larger image.
for July 17, 2009
Light Sweet Crude
Oil NY Harbor
|The first two graphs
the best short term indicators of natural gas prices.
first shows the relative
prices of natural gas and crude oil with oil prices converted to their
Btu equivalent. Since oil and natural gas compete directly in some
most notably power generation, high crude oil prices put upward
on natural gas prices.
second shows the difference
between the current volume of storage and the 5-year average. When the
difference is significantly below normal it is an indicator that demand
exceeds supply implying higher than "normal" prices.
|The red line in the graph
below (scaled on the left) shows the difference between the current
of gas in storage and the average of the previous five years. The black
line (scaled on the right) is the current natural gas price less the
of crude after it is converted to the Btu equivalent price. The graph
below that has natural gas prices as a percent of crude on a Btu basis.