November 1, 2010

Natural Gas Prices Spike Into Heating Season

It appears that last week's rising prices on the CME/NYMEX natural gas market had more to do with Friday's calendar settle date for futures than any fundamental market factor. In terms of trading range over the past week, natural gas traded as low as $3.50 per mmbtu last Monday to as high as $4.20 per mmbtu this morning. It has since pulled back to $4.074 at 9:00 AM. Even at today's rates, natural gas is trading 20% below last year's values and it represents excellent value as we officially enter the heating season today.

Natural Gas Inventory Increases by 71 BCF

Working gas in storage was 3,754 Bcf as of Friday, October 22, 2010, according to EIA estimates. This represents a net increase of 71 Bcf from the previous week. Stocks were 1 Bcf less than last year at this time and 312 Bcf above the 5-year average of 3,442 Bcf.

Generally, the US consumes 20 TCF of natural gas per year. The current storage level represents roughly 18.75% of total US annual demand with one weeks of injections to go before the official start of the heating season. (Inventory data lags by a week.)

Natural Gas Exploration Trend Remains Flat

Last week's Baker Hughes natural rig activity report registered an increase of just 2 natural gas rigs from the previous week. In total, there are 967 rigs in production, which reflects an increase of 239 compared to last year. The flattening of the exploration trend continues.

Baker Hughes is betting on the Marcellus Shale. They announced the opening of a new production support facility in Hempfield Township. The repair and maintenance center will support natural gas well drilling, completion and production operations in the Marcellus Shale. The 57,000-square-foot center represents a $16 million investment and is part of a multiyear $250 million infrastructure investment to support Marcellus Shale operations. (Source: BakerHughes.com)

Natural Gas Shut-ins Highlight New Energy Trends

Conoco Phillips has announced that it has shut-in wells that are currently in production due to the low prices for western natural gas. The total amount of gas shut-in by Conoco is 180 million feet a day, which represents a very small portion of Conoco's US production. Conoco expects other companies to join the shut-in trend. The primary cause of the shut-ins is plentiful shale gas from Austin Chalk, Louisiana Haynesville Shale and Appalachian Marcellus Shale producers.

The industry is also seeing a dramatic decrease in exploration plans for new formations requiring conventional drilling. Natural gas will need to reach $8.00 per mmbtu in order for conventional drilling processes to be profitable. Cost factors for offshore drilling are even higher. We have commented before on the impact of shale gas on nuclear power. It is also having an impact on other regions of the country such as Colorado and offshore Louisiana. There is a dramatic shift to new energy producing areas in the US that we haven't seen since the offshore-rig boom in the Gulf of Mexico in the eighties. (Source: Reuters.com)

Natural Gas Futures
CME-NYMEX natural gas futures market intraday prices for Nov. 1, 2010 at 9:00 AM
(Prices are USD per mmbtu)

Dec/2010- $4.074 +$0.036
Jan/2011-  $4.307 +$0.042
Feb/2011- $4.315 +$0.040
Mar/2011- $4.256 +$0.037
Apr/2011-  $4.219 +$0.035
May/2011- $4.245 +$0.035

PMC 30-Day Natural Gas Futures Chart

Crude Watch
Light Sweet Crude (WTI) is trading on the CME/NYMEX market at $83.59 bbl, up $2.16 at 9:30 AM.

 OPEC Basket Data
 
Electricity Watch

For more information view the Day Ahead Electric pricing data charts from the PMC database, updated every Monday.

Weather Trends
Tropical Storm Tomas may find new strength as it turns northward towards Haiti and Cuba, away from the Gulf of Mexico. While temperatures will cool over the next week, the NWS is indicating that the Northeast will have higher than average temperature in its 8 to 14 Day Forecast.

8-14 Day forecast
NOAA Forecast- 30-Days
El Nino-La Nina (Pacific Ocean Temperature Levels)
Arctic Oscillation (Arctic Pressure Patterns)

Click Here to View the PMC Energy Charts for Natural Gas, Day Ahead Electricity and the Crude to Natural Gas Comparative Chart.