Chris McGill Natural gas market indicators

NGMI Sepember 15 2009

Natural gas prices have rebounded slightly from a brief flirtation below the $2 per MMBtu benchmark. So, has the market seen the bottom of Henry Hub price fluctuations? Some analysts believe so, however, others say the minor rally can’t be sustained without nature bringing on a supply disruption.

The current winter heating season outlook for consumer bills is for a decline in winter bills for natural gas customers on average compared to the 2008-2009 winter but clearly such an outlook is dependent on weather and market predictability – something that seems more and more elusive.

Looking at last year’s expectations, the EIA winter fuels outlook (October 2008) pointed to an 18 percent increase in average home heating bills for the 2008-2009 winter. By March 2009, EIA had adjusted that final expectation to only a one percent increase. That isn’t a criticism of EIA – it is a testament to the unpredictable influences on today’s energy market.

Even though lower price projections compared to last year seem very reasonable, it seems just as reasonable to assume that prices will rise with the onslaught of winter heating demand loads and perhaps with increasing industrial demand.

For example, the Institute for Supply Management’s manufacturing index for July reported that the manufacturing sector is expanding again, marking the first time since the recession began. BENTEK Energy’s modeling suggests that the increase in manufacturing activity is translating into higher industrial demand for gas (a 10 percent increase from May to August).

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