July 12, 2010

Natural Gas Prices Decline as Weather Cools

July certainly came in like a very steamy lion, but the National Weather Service is predicting that temperatures in the Eastern United States will return to seasonal averages and may exit like a lamb. As temperatures decline, so will the price of natural gas futures. Three weeks ago, natural gas was trading as high as $5.20 per mmbtu; today it is trading intraday at $4.401 at 9:27AM, unchanged from Friday's close. This represents a 16% decline back to the trading channel of $4.00 to $4.50 that existed before the heat wave.

There is a flip side to the weather variable that is focused in the Gulf of Mexico. The Gulf is warmer than average and has already demonstrated in the past two weeks that it is a fertile source for new tropical storms. This condition is a hangover from the El Nino pattern that remained intact through the winter. So far the storms have not gained critical mass of the scale of a Katrina, but the potential is real and worth watching.

According to the most recent EIA Short Term Energy Outlook: "EIA expects the Henry Hub natural gas spot price to average $4.70 per million Btu (MMBtu) this year, a $0.75-per-MMBtu increase over the 2009 average and $0.22 per MMBtu higher than in last month's Outlook. Most of the increase in the price forecast occurs in the third quarter of this year, due to projections of increased hurricane activity in the Gulf of Mexico this season, which pushed spot prices higher. EIA expects the Henry Hub spot price to average $5.17 per MMBtu in 2011, up $0.11 per MMBtu from last month's Outlook."

Production Plateau Continues
With only 4 natural gas wells added in the last week of June in the US, it is safe to say that there is a plateau in new production. We have over 964 wells in production, which is 292 more than last year at this time. The EIA is predicting a 1% increase in production this year.

Natural Gas Storage Rises
Working gas in storage was 2,762 Bcf as of Friday, July 2, 2010, according to EIA estimates. This represents a net increase of 78 Bcf from the previous week. Stocks were 23 Bcf less than last year at this time and 285 Bcf above the 5-year average of 2,477 Bcf. To put this in perspective, the US already has well over 10% of its natural gas consumption in storage, four months before the onset of the heating season.

Natural Gas Market Watch- Intraday Prices Snapshot
Here are the intraday prices on the CMEG/NYMEX electronic market today (Monday) at 10:15 AM for the next six months($ per mmbtu, intraday prices):

Aug. $4.426 +0.024
Sep. $4.442 +0.024
Oct. $4.517 +0.019
Nov. $4.843 -0.001
Dec. $5.174 -0.007
Jan. $5.352 0.0

Natural Gas Futures:
PMC 30-Day Natural Gas Futures Chart

Crude Watch
NYMEX Crude (WTI) front month future is down $0.34 to $75.08 at 9:05 AM.
 OPEC Basket Data
 
Electricity Watch-
The record-breaking heat wave pushed grids to the max, but there were no major blackouts. While the regulators will cite improved reliability efforts, another factor that helped keep the lights on was the weak demand from industry.

According to the EIA STEO, the annual average residential electricity price changes only moderately over the forecast period, averaging 11.6 cents per kilowatthour (kWh) in 2010, up slightly from 11.5 cents per kWh in 2009, and rising to 12 cents per kWh in 2011. Review the historic trends for key electric markets in the Northeast with the Day Ahead Electric pricing data charts from the PMC database, updated every Monday.
For more information view the Day Ahead Electric pricing data charts from the PMC database, updated every Monday.

Weather Trends-
NOAA is predicting a break from the heat and a return to seasonable weather ahead for much of the East Coast.09-2010.
NOAA Forecast for Next Week
8-14 Day forecast
NOAA Forecast- 30-Days
El Nino-La Nina (Pacific Ocean Temperature Levels)
Arctic Oscillation (Arctic Pressure Patterns)

Production Note: The PowerNews Energy Update for next Monday is rescheduled for the first business day after the July 4th Holiday. There will be no Energy News Flash next Monday.

Written and Researched by Martin Linskey; Energy Charts developed by Charles Myers.

Disclaimer: This information is provided for the use of our customers and potential customers. Power Management Company assumes no responsibility or liability for the accuracy or completeness of pricing or information in this document. Historical data was obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. It is not intended to provide advice or recommendation. Views are subject to change without notice.