Author Archives: Chris McGill

Natural gas consumers in the United States have been told to expect relatively stable natural gas costs (dependent on weather of course) and reliable supplies for the coming winter heating season. The proof is in the numbers: large underground storage volumes, record domestic production, and adequate access to pipeline and LNG imports when necessary.

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Natural gas spot and futures market prices have turned toward the downside the past two weeks, driven in part by mild weather that has led to soft demand, a fact reflected in demand volumes in the low 50 Bcf per day range, currently only slightly above last year’s volumes. Meanwhile, production remains elevated and consistently strong, so near-record volumes of gas directed into storage are now above the five-year average and close to the all time record set last year.

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Natural gas market fundamentals appear to have eased (particularly retreating demand), which has led to relatively softer prices over the past week. Market demand, including Mexican exports, has dropped to 50 Bcf per day (and lower) on certain days in September, as moderating temperatures have resulted in reduced gas loads to power generation while dry gas production for the month of September remains strong at 62 Bcf per day, 7.0 percent above last year.

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Daily cash prices at Henry Hub have fallen and near-term futures have even slipped below $4 per MMBtu during the past month. With futures contracts for October 2011 through March 2012 spread between $3.95 and $4.35, markets appear to anticipate adequate natural gas supply and thus expect only modest upward pressure on prices. The U.S. supply portfolio, including domestic production, Canadian imports, and liquefied natural gas, should therefore be sufficient, in the collective view of the market, to meet the needs of peak winter heating season demand.

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