Category Archives: weather

Richard Meyer Natural Gas Market Indicators: June 15, 2016

The market is showing clear signs of tightening. Slowly falling production is eating into supplies while strengthening demand from power burn and exports means the balance into storage this June has been well below average. This deficit gives a little relief to a market with storage stocks at levels about two months ahead of schedule for a typical injection season.

The market has rationalized itself with rising prices, up now $0.60 from that $2 sticking point witnessed through much of the winter. Key to this balance, as always, will be summer weather. If temperatures drive more cooling demand, the bullish injection deficit is likely to persist.

Conversely, mild temperatures could mean additional volumes into storage, which would likely prove bearish for this market. However, the potential for additional exports through year-end may offer some additional flexibility on the demand side.

As these factors adjust in relation to each other, it’s important to step back and recognize that given the diversity and strength of demand and the rapid evolution in upstream activity just how resilient this market has been, as evidenced by lower and relatively stable prices for natural gas.

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 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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Richard Meyer Natural Gas Market Indicators: August 14, 2015

Much of the near-term pricing analysis for natural gas in energy literature today points to the fact that as August winds down cooling loads will likewise lessen and natural gas storage will continue to build toward a strong pre-winter position—all moderating factors in price expectations.

On the other hand, more gas to power generation seems to be price-induced and structurally built in to gas markets—factors that would seem to point to price increases once winter demand loads begin. Pricing bulls and bears, bears and bulls. Similar tugs in both directions have led to relative stability in Henry Hub pricing this summer.

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: June 15, 2015

The release of the nearly 1,000 page EPA study on hydraulic fracturing and drinking water begs the question, “what will be next?” Perhaps the environmental focal point will shift to continued analysis of methane emissions within the value chain.  Only time will tell.

Natural gas acquisition prices are currently quite modest and the domestic storage position is back to more normal. In fact, from the end of May through the balance of the traditional net injection season daily injections would only have to average about 11.5 Bcf per day to bring national inventories to 4 Tcf entering the winter for the first time in history. Production fundamentals and requirements for natural gas to serve cooling loads will make that determination as the summer progresses.

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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