May 16, 2011 

Natural Gas Prices Decline by 9% Since May 1

Natural gas prices were pulled down by the global commodity decline and have not rallied over the past week. Of course, we are in a shoulder period, which arrived late due to the extended cold weather this spring. The forecast indicates a warming trend in the Northeast and a cooling trend in the South, which is the ideal mix for consumers as both trends will curb energy use across the country. This morning, natural gas is up slightly on the CME-NYMEX market at 8:45 AM; $4.28 per mmbtu, up $0.034.

Where Are the Rigs of Yesteryear?

As we have reported in the past, natural gas drillers are using their tried and true home remedy for low prices. Stop drilling. According to Baker-Hughes, there are 874 active exploration rigs in the US, which is 77 less than last year. There are 16 fewer rigs than the previous week. Even in Pennsylvania, there are two fewer rigs than the previous week. In the classic Supply-Demand equation, there is no mystery to what happens if you curb supply. New York State's moratorium on fracking is also helping to keep rigs out of the fields.

To answer the question, the rigs are popping up in all the usual locations in Texas, Louisiana and Oklahoma. Despite what you are hearing on talk radio, the US is in a drilling frenzy for crude. Exploration companies such as Chesapeake Energy, Conoco, Chevron and Exxon Mobil are focusing on the profitable hydrocarbon and leaving natural gas as an afterthought. Over the next two years, we will also see increased leasing activity in the purported "next Saudi Arabia", the Baaken  Formation in North Dakota, Montana and Saskatchewan.

The real reason that there is so little offshore activity is not political: it is economical. The Lower-48 is now a target-rich environment for land-based rigs. The only reason to drill offshore is to maintain a lease. With an expense factor of nearly five times that of a land-based rig, it is difficult to make an ROI case for offshore production.

President Obama's statement on Saturday which supports drilling in the Alaskan Petroleum Reserve and off of the East Coast is rhetorical. When it comes to basic economics, neither area is worth producing considering the abundance of easier to drill alternatives.

Wind Power Boosts Iberdrola
According to Bloomberg, "output from U.S. wind turbines jumped 48% to 3,090 GwH, offsetting a decline in Spanish hydropower generation." Iberdrola's first quarter profit rose 10% to a record $1.5 billion. Iberdrola owns RG&E and NYSEG. Back in Spain, Iberdrola is involved in a potential boardroom power struggle involving Activiadades de Construccion y Servicios SA. ACS is seeking a seat on the Iberdrola board. (Bloomberg.com)

Natural Gas Futures
We extended the futures prices in this issue of the EnergyNews Flash to give you a peek into next winter. For those watching the $5.00 price, it has now shifted ahead to November of 2012. Just two weeks ago it was in play for December/2011. This is an excellent example of the impact of volatility on prices and demonstrates how quickly pricing for entire seasons can shift up and down in the span of just a few weeks.

CME-NYMEX natural gas futures market intraday prices for May 16, 2011 at 10:50 AM
(Prices are USD per mmbtu)

Jun. - $4.280 +$0.034
Jul. - $4.346 +$0.035
Aug. - $4.387 +$0.033
Sep. - $4.411 +$0.032
Oct. - $4.461 +$0.033
Nov. - $4.622 +$0.030
Dec. - $4.838 +$0.030
Jan. - $4.951 +$0.034
PMC 30-Day Natural Gas Futures Chart

Natural Gas Storage Levels Are 37 BCF below 5-Year Average
Working gas in storage was 1,827 Bcf as of Friday, May 6, 2011, according to EIA estimates. This represents a net increase of 70 Bcf from the previous week. Stocks were 249 Bcf less than last year at this time and 37 Bcf below the 5-year average of 1,864 Bcf.

Crude Watch-

Light Sweet Crude (WTI) is trading on the CME/NYMEX market at $99.47 per bbl, down $0.19 at 11:01 AM.
 OPEC Basket Data

Electricity Watch
Electricity prices remain within the $35-$50 trading range that has been in place for over two months.


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)

Connecticut Seeks Pricing Solutions and May Switch to NYISO (Hartford Current)

NJ Approves Construction for Wind Farm (Trentonian)

Alcoa Introduces "Revolutionary" Green Product (The Street.com)

Weather Trends
The National Weather Service's 6-10 Day Forecast indicates warmer weather ahead for the North-eastern US. Sadly, more rain ahead for the Mississippi.

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)