Spring 2014 Natural Gas Price Update

By Vernon Trollinger, February 27, 2014, News

chartTo say that winter this year has been bitterly cold sounds like an understatement. In northern United States, the only signs of spring are the garden seeds and Easter candy on sale at the local home center. Winter’s icy grip is still forcing consumers to crank up their thermostats and it’s that increased demand for heat that’s driving natural gas prices.

Low temps, High Demand

Needless to say, we’ve burned up a LOT of natural gas to keep warm over the past few months. Both New York and Texas rely on natural gas for generating half of their electricity, while 40.6% of all North American electricity comes burning natural gas. On November 8, 2013 , there was 3,834 billon cubic feet (bcf) of natural gas in working storage. By February 14, 2014, the US had consumed 2,391 bcf (including periodic injections), leaving 1,443 bcf. The Energy Information Administration (EIA) cites a “normal” five-year average for weekly withdrawal as 133 bcf. So far this winter, there have been six weeks of greater than 230 bcf withdrawals.

…And it’s not even March, which NOAA forecasts as warm in the southwest while averaging out as colder in the north. The question of course is, just how cold is colder going to be and how long will it last?

Pricing

With weather moderating in the south, the NYMEX monthly contract prices have come down but remain jumpy due to weather uncertainties. The NYMEX March contract hit $6.149/MMBtu on February 18. As of this writing (February 24 at 2 pm EST), the March contract had fallen to 5.64/MMBtu. By comparison, last year’s March contract closed out at $3.427/MMBtu when there was 2,229 bcf left in storage.

Mid-February production rose to 65.7 bcf/day, in spite of problems with well freeze-offs. The EIA predicts an average production expansion of 2.2% in 2014 with the added possibility that production in the Marcellus will cause northeastern spot prices to dip below the Henry Hub spot price. EIA Short Term Energy Outlook (STEO) estimates that the Henry Hub spot price will average $4.17/MMBtu in 2014.

With natural gas bouncing in the $4.00 range, that assessment for increasing production doesn’t sound too far-fetched. Even Chesapeake Energy, which scaled back its operations to restructure operations, is looking to begin new drilling operations in both the Haynesville and Marcellus shale plays.

Spring Outlook

Sooner or later, warmer temperatures will begin to meander northwards. Energy demand will drop and so too will prices for both natural gas and electricity. Typically in mid-spring, energy prices are at their lowest. However, given the price of natural gas and the low storage inventory, this spring may not offer the lowest rates.

Here’s why. Low natural gas inventory and attractive prices may tempt producers with short term gains this summer to over-produce. Current output is about 70 bcf/day from only 337 rigs . In 2012 when gas sank to the $2.00/MMBtu range, there were about 500 rigs. Additionally, some utilities have gone back to burning coal because of higher natural gas prices. So while the market may not become glutted with “shale liquor” this autumn, natural gas stocks could become plentiful enough to drop prices below $4.00 before the next winter heating season begins.

Complicating this is the possibility of extreme summer weather keeping cooling demand high, particularly in Texas, the southwest, and California. Summer power burn during the record heat of June 26 to July 31, 2012 averaged above 33 bcf/day or about 230 bcf/week— close to those high amounts consumed this past winter.

So, there is a possibility that when the natural gas injection season ends in October, natural gas prices may dip lower then than this spring. But this depends on the summer power demand and what producers perceive to be in their near-term interests. Consumers who are looking for a new energy plan should watch natural gas prices and electricity plan rates carefully to get the best deal at the best time.

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About 

A native of Wyomissing Hills, PA, Vernon Trollinger studied writing and film at the University of Iowa, later earning his MA in writing there as well. Following a decade of digging in CRM archaeology, he now writes about green energy technology, home energy efficiency, DIY projects, the natural gas industry, and the electrical grid.

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