March 21, 2011 

Natural Gas Futures Match Last Year's Price

Natural gas front month prices are in line with last year's prices, though the prices seem to be moving in opposite directions. Crossover points are always worth noting just in case we are at the beginning of a new price trend. Other than the decline in exploration rigs, there does not seem to be any fundamental reason for an immediate increase in natural gas prices.

External factors that are impacting prices are the turmoil in Libya and the crisis in Japan. Barclays Analyst, Biliana Pehlivanova, estimates that Japan will need to replace 12 to 13 GWH of electricity due to its ongoing nuclear reactor meltdowns. In the past, when Japan needed to find alternate fuel sources for electricity, liquid natural gas represented 40% of the replacement fuel stock, or roughly 800 mcf of natural gas per day. This represents 3% of the world LNG supply. Japan's need for LNG in the future will not impact the United States, which imports less than 2% of its natural gas as LNG. (Source: Bloomberg)

On the CME/NYMEX natural gas futures market, front month prices are recovering from as low as $3.76 per mmbtu on 3/3/11. At 9:45 this morning, the prompt month gas (April) is up $0.012 to $4.180 per mmbtu. Looking forward, we do not see any future prices trading over $5.00 per mmbtu until January/12. Considering the relatively low prices for natural gas, this may be a good time to lock-in a percentage of next year's winter supply.

Crude and natural gas have not traded in tandem for years and we don't see any fundamental reason for that to happen. From 2006 through the first six months of 2008, energy derivative speculators succeeded in linking natural gas and crude prices. They ultimately drove natural gas over $13.00 per mmbtu. The current plethora of crises may provide traders with enough uncertainty to drag natural gas along with crude oil. It is worth watching if natural gas prices continue to climb as we near the end of a heating season.pric

Natural Gas Futures
CME-NYMEX natural gas futures market intraday prices for March 21, 2011 at 10:15 AM
(Prices are USD per mmbtu)

Apr. - $4.180 +$0.012
May - $4.260 +$0.014
Jun. - $4.328 +$0.012
Jul. -  $4.398 +$0.010
Aug. - $4.432 +$0.010
Sep. - $4.443 +$0.005

PMC 30-Day Natural Gas Futures Chart

Natural Gas Storage Levels Return to Normal
Working gas in storage was 1,618 Bcf as of Friday, March 11, 2011, according to EIA estimates. This represents a net decline of 56 Bcf from the previous week. Stocks were 1 Bcf higher than last year at this time and 23 Bcf above the 5-year average of 1,595 Bcf. The recent warm weather has turned the inventory data to more positive levels than two weeks ago.

Natural Gas Exploration Companies Dialing It Back
According to Baker-Hughes, there are 7 fewer exploration rigs in the US than last week. The big number that should be gaining some press is the total rigs at work which is 875. That's 64 fewer rigs in action than last year. The natural gas industry clearly does not like today's prices and is seeking to optimize margins by reducing supply.

Crude Watch- Libyan Unrest Drives World Crude Markets
Light Sweet Crude (WTI) is trading on the CME/NYMEX market at $102.38 bbl, up $1.31 at 9:12AM.
 OPEC Basket Data

Electricity Watch
Electricity prices for all zones have retreated to levels that we saw last November. Few energy managers will complain if prices slide into the $35-$55 per MWH channel that we experienced through much of last year.


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

Interesting Links and Resources

(Click on Links to View)

American Red Cross  (Japanese Disaster Relief)

NYSERDA's Energy Efficiency Programs Are Working  (Release from New York State Public Service Commission)

Report Finds That PJM Wholesale Market is Competitive (Monitoring Analytics)

UK's Centrica Buys Gateway Energy for $90-Million  (Bloomberg)

Solectria, a Lawrence Mass. Solar Power Company Expanding (Business Wire)

NY and NRC to Meet About Safety Concerns at Indian Point (Bloomberg)


Weather Trends
The National Weather Service's 6-10 Day and 8-14 Day Forecasts both indicate that a general cooling trend will span most of the Eastern US. Some forecasters are predicting the opposite. You'd think we were discussing the weather.

6-10 Day forecast
8-14 Day forecast
NOAA Forecast- 30-Days
El Nino-La Nina (Pacific Ocean Temperature Levels)
Arctic Oscillation (Arctic Pressure Patterns)
Jet Stream Forecast (SFSU)