Category Archives: supply

Richard Meyer WINTER BILLS SET TO DROP THIS SEASON

Winter is nearly in the air. At the American Gas Association, that means it’s time for another winter heating season outlook for customer heating bills. This year the fundamentals are positioned such that we expect customers will pay less on their heating bills than last year.

Amid abundant supplies, near normal temperatures, and a moderate increase in natural gas demand, we anticipate residential natural gas bills to be the second-lowest we’ve seen during the past decade. AGA’s Policy Analysis group estimates a 5 to 7 percent decrease in bills this winter, meaning good news for homes and businesses.

There are three principal factors at play, two of which are subject to varying amounts of uncertainty.

The first, of course, is weather. AGA’s outlook is based on a National Weather Service forecast, which anticipates a warmer-than-normal winter. Its forecast has 2 percent fewer heating degree days (warmer) this winter than the 1980-2010 average. This, in turn, translates to approximately three percent less natural gas demand for home heating loads.

Cooler weather in the southern half of the US would be balanced by warmer-than-average temperatures in the North. However, since the northern states tend to be higher consumers of natural gas, the net effect would likely be a decline in residential gas consumption.

Weather Map

NWS forecasts two percent fewer heating degree days (warmer temperatures) this winter.

Weather represents the biggest area of uncertainty in this outlook. A colder winter will boost heating demand and the amount of gas consumed by households. If temperatures are warmer than expected, bills might be even lower.

Meanwhile, the price of natural gas remains low and is expected to remain so this winter. The Energy Information Administration’s Short-term Energy Outlook (September 2015) projects lower residential natural gas prices compared with 2014. A comparison of November through March for this winter compared with last shows a 5 percent decline in delivered prices.

Price outlooks always carry a degree of uncertainty as well. Commodity prices could rise or fall in the face of cold or warm weather events or supply disruptions. However, as we’ve seen during the past few winter seasons, weather-induced price movements have been relatively muted, acting more as short-term signals to suppliers.

With robust supplies and infrastructure in place, there’s every reason to expect the relatively low and stable pricing regime to continue, even amid short-term fluctuations in commodity prices. Furthermore, natural gas utilities maintain supply portfolios that include both physical and financial positions in order to manage variance in the market. This adds further price and supply stability during the winter months.

Finally, our third factor: average household gas usage, which continues to decline. Based on EIA data on residential gas use and number of customers, and after adjusting for year-to-year changes in temperatures, a steady decades-long decrease in household natural gas use emerges. Tighter building shells, higher appliance efficiency, and utility investments into efficiency have all contributed to cutting average household gas use by half since 1970, which in turn mitigates customer exposure when weather or price dynamics conspire to push customer bills up.

Residential use

What are some of the market fundamentals that underpin AGA’s Outlook?

First is supply. United States natural gas production is on track for another record year in 2015. Daily dry gas volumes in the lower-48 have averaged 71.6 billion cubic feet (Bcf) per day this year, which is a 5 percent increase from 2014, which itself was a record year.

production

Demand hasn’t let up either and is poised to set another record as well. Lower-48 natural gas consumption has averaged 76.3 Bcf per day year to date in 2015, an increase of nearly 4 percent on the backs of stronger natural gas power generation and exports to Mexico. Note that each year from 2010 through 2014 were all record years for demand. We might be adding 2015 to the list soon.

Natural gas in underground storage is in as strong a position as it’s ever been. At more than 3.5 Tcf of working gas in storage currently, there are typically about six weeks remaining during the injection season; that is, when net volumes into storage are positive. If volumes directed into storage remain at a rate consistent with the past five-year average—recognizing that this year’s injections into storage have actually exceeded the average rate—then winter inventories could surpass 4 Tcf for the first time ever.

The resulting balance between supply, demand, and storage has been a relatively low and stable natural gas price. The last time natural gas at Henry Hub was priced above three dollars was May 20, 2015, and most of the year has been in the $2.00-2.75 range. This speaks to the robustness of the supply and infrastructure in place despite record levels of demand so far in 2015 as well as the strength of production volumes.

price

Headed into the winter, supplies are robust and prices are moderate even with record levels of demand. Given these market fundamentals, consumer bills are expected to moderate or even decline this winter. Like I said: good news for households and businesses across the country.

Natural gas continues to be the lowest-cost energy option for home heating. Affordable customer bills is just one reason natural gas provides homeowners with value. As companies and the country continues to modernize the natural gas infrastructure base and connect homes and businesses to this system, new opportunities arise to lower consumer bills, improve energy efficiency, and achieve low-cost emissions reductions by leveraging this existing infrastructure and the nation’s abundant natural gas resources.

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Chris McGill Natural Gas Market Indicators: September 29, 2015

Analysts often point to demand pressures as the next ticket to average price increases for natural gas at points such as Henry Hub or that even LNG imports will spur price advances. OK, that may be so, but here we are in a year, once again, where actual consumption has jumped and is headed to another record, primarily on the back of natural gas to power generation. Yet, prices have not increased.

Visit this link to download the full Natural Gas Market Indicators report. Topics covered in this week’s report include: Reported Prices, Weather, Working Gas in Underground Storage, Natural Gas Production, Shale Gas, Rig Counts, Pipeline Imports and Exports, and LNG Markets.

Please direct questions and comments to Chris McGill at cmcgill@aga.org or Richard Meyer at rmeyer@aga.org.

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Richard Meyer Natural Gas Market Indicators: September 11, 2015

Many years ago, the month of September was the time when the natural gas industry and the market began taking stock of supplies in preparation for price increases that were certain to occur. Companies would set expectations for the winter, where the rush of demand would push prices upwards. This preparation still exists today, as do price movements, but conditions have changed substantially. The expected supply concerns of even a decade ago have transitioned to a more modern recognition of supply diversity and abundance. This year a strong supply base has continued to outpace even record levels of demand, which has been driven by record levels of natural gas to power generation, itself up 16 percent. The result has been a near record push of volumes into storage, which might hit the 4 Tcf mark before the winter turnaround. The past few years the U.S. has entered the winter season with a robust supply outlook. Right now 2015 appears poised to follow suit.

Visit this link to download the full Natural Gas Market Indicators report. Topics covered in this week’s report include: Reported Prices, Weather, Working Gas in Underground Storage, Natural Gas Production, Shale Gas, Rig Counts, Pipeline Imports and Exports, and LNG Markets.

Please direct questions and comments to Chris McGill at cmcgill@aga.org or Richard Meyer at rmeyer@aga.org.

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Richard Meyer Natural Gas Market Indicators: July 13, 2015

With a 5-4 ruling, the Supreme Court of the United States remanded to a lower court the EPA Mercury and Air Toxic Standards (MATS) rule that would limit pollution from coal-fired power plants. The Court said that the EPA did not properly account for the costs of the rule when determining emissions standards and needs to do so. The ruling may have larger implications for future rulemakings under the Clean Air Act, but one question remains for these observations of the gas market: how much have expectations for MATS already been baked into the electricity system. In other words, will this ruling do much to reverse existing trends with coal-fired power?

The natural gas market today is supplying nearly 20 percent more natural gas to power generators than last July. In fact, EIA data on electric generation share by fuel for April showed that natural gas overtook coal for the first time ever – natural gas with nearly 32 percent compared with coal’s 30 percent. Part of the reason is price. The spot at Henry Hub is nearly $1.70 per MMBtu below last year. But part of the reason is structural. Compliance with the EPA MATS began in April and analysts expected between 13 and 20 GW of coal-fired power plants to be either retired or repowered in 2015 alone. Some of the shift has already occurred and is contributing, at least in part, to the gas volumes to power generation. Does this market transformation render the Supreme Courts’ decision moot?

Visit this link to download the full Natural Gas Market Indicators report. Topics covered in this week’s report include: Reported Prices, Weather, Working Gas in Underground Storage, Natural Gas Production, Shale Gas, Rig Counts, Pipeline Imports and Exports, and LNG Markets.

Please direct questions and comments to Chris McGill at cmcgill@aga.org or Richard Meyer at rmeyer@aga.org.

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