May 2, 2011 

Natural Gas Rallying For Fundamental and Speculative Reasons

Since April 5th, when the front-month price for natural gas on the CME/NYMEX market was $4.09 per mmbtu, the fuel has risen 13%. What is unusual is that we are technically in a "shoulder" period between the heating and cooling season. Many were expecting a flat line during this period. What happened?

From a fundamental perspective, the cold spring has increased demand as furnaces have been working overtime across the northern US. Due to the lower prices at the well-head, natural gas exploration has been declining. There are 76 fewer exploration rigs in action last week compared to activity in April of 2010. In the oil and gas industry, the fool-proof way to raise prices is to curb supply.

Another reason, which Bloomberg.com mentioned today, is the appearance of natural gas speculators who were betting that a few nuclear power plants may need to be shut down for inspections. Vermont Yankee received approval last week to renew its license for another 20-years from the NRC. Interestingly, both chambers of the Vermont legislature must approve any extension. Vermont is possibly the most liberal state in the Union and most committed to renewable energy solutions.

In New York, Indian Point, which is located on the Hudson, has also come under more intense political focus from Governor Cuomo. When risk assessments are made regarding the potential for earthquake damage, IP Reactors 2 & 3 are rated as the most vulnerable in the US. It is located at the intersection of two fault lines and is just 24-miles from a little town, formerly known as New Amsterdam, containing over 8 million people.

When you consider that Vermont Yankee generates 540 MWH of electricity and that the two reactors at Indian Point generate 1,230 MWH, you begin to see the traders' rationale; there would definitely be a need for more natural gas-fired electricity generation to cover the grid's base-load in the Northeast if either, or both plants were shut down.

In California, serious discussions are in progress regarding shut downs of their nuclear facilities. Diablo Canyon features dual nukes and is facing an uphill battle for relicensing in the state. In fact, PG&E is requesting a suspension of the review while it reassesses the seismic risk.

Mega Energy Mergers Sprouting Like Daffodils

Last Friday, we learned that Constellation Energy is the takeover target of Chicago-based Exelon, the leading nuclear energy provider in the United States. The $7.9 Billion valuation will create an energy powerhouse that will generate over 34 GWH of energy in the US. The new Exelon will generate 55% of its energy from nuclear power and 24% from natural gas which will support its claim to fame as America's cleanest energy company.

This morning, Arch Coal announced that it plans to purchase International Coal for $3.4 Billion. Arch coal will outpace Alpha Natural Resources as the No. 2 metallurgical coal producer in the US. The company has plans to increase coal exports from facilities on both coasts for increased steel demand in China and India.

Natural Gas Futures
We extended the futures prices in this issue of the EnergyNews Flash to give you a peek into next winter. Notice the sudden return of the $5.00 mark in December /2011.

CME-NYMEX natural gas futures market intraday prices for May 2, 2011 at 10:50 AM
(Prices are USD per mmbtu)

Jun. - $4.698   $0.000
Jul. - $4.768 -$0.007
Aug. - $4.813 -$0.011
Sep. - $4.822 -$0.013
Oct. - $4.858 -$0.014
Nov. - $4.986 -$0.017
Dec. - $5.189 -$0.024
Jan. - $5.302 -$0.020
PMC 30-Day Natural Gas Futures Chart

Natural Gas Storage Levels Are 11 BCF below 5-Year Average
Working gas in storage was 1,685 Bcf as of Friday April 22, 2011, according to EIA estimates. This represents a net increase of 31 Bcf from the previous week. Stocks were 215 Bcf less than last year at this time and 11 Bcf below the 5-year average of 1,696 Bcf.

Crude Watch- Oil Prices Decline on Bin Laden News

Light Sweet Crude (WTI) is trading on the CME/NYMEX market at $114.77 per bbl, up $0.84 at 11:05 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)

Exelon to Purchase Constellation Energy  (Reuters)

Arch Coal To Purchase International Coal (WSJ)

ANGA Rebuts Prof. Howarth's Natural Gas Report. (USCPI)

Government Sees No Big Shifts for Energy by 2035 (Fast Company)

Weather Trends
The National Weather Service's 6-10 Day Forecast indicates warmer weather ahead for the Eastern US.

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)