Volume 10, Issue 11 | March 16, 2012

Editor's Note

Storages Hit Record High Levels After Fourth Warmest Winter on Record

Week in review for period of March 9 - 15, 2012

Although natural gas and electricity prices decreased during the two week period of February 24, 2012 to March 8, 2012, prices unexpectedly rose this week. For this seven-day report period, the 12-month average price for natural gas on the NYMEX rose 3.7% and the 12-month average price for peak power on the PJM rose 3%.

It is hard to explain this week's price increase given the fact that the gas surplus is now 51% greater than the five-year average and unusually warm temperatures are predicted for the next week. We are assured of ending the traditional withdrawal season on March 31, 2012 with a record gas surplus in storage.

Despite this week's price increase, natural gas and electricity prices are still trading near a ten-year low. It is easy to explain these low prices when you look back at our winter temperatures. This was one of the warmest winters on record which minimized the demand for natural gas heating. In fact, November weather was 21% warmer than normal, December weather was 22% warmer than normal, January weather was 17% warmer than normal, February was 18% warmer than normal, and the weather during the first 15 days of March was 37% warmer than normal. Low heating demand leads to low prices.

Where do prices go from here? Is this the bottom? One area worth watching is the fuel switching that is occurring at the U.S. power plants. According to the U.S. Energy Information Administration, "coal-fired generation decreased in favor of natural gas in all regions in December when compared to December 2010. In all regions natural gas is replacing coal as the fuel used in electricity generation."

If the weather stays unusually warm, and the natural gas-fired generators are needed to meet the air conditioning demands this summer, we may begin to see some upward pressure on prices.


Natural Gas Fundamentals

Natural Gas Storage Update: Data Released March 15, 2012


 

 Current Week

Last Week 

Net Change

 This Week Last Year 

 Prior 5 Year Average

 

 Stocks (Bcf)

Stocks (Bcf)

 (Bcf)

Stocks (Bcf)

 Average (Bcf)

 Total Lower 48

2,369

2,433

 -64

1,634

1,562

Storage Update: This week's withdrawal was of 64 Bcf was, once again, below the five-year average withdrawal of 79 Bcf. As a result, the gas surplus over the five-year average grew from 48% to 51%.  On a year -to-year basis, we have 45% more gas in storage now than last year at this time. With unusually warm temperatures  predicted over the next week, we are assured of ending  the traditional withdrawal season on March 31, 2012 with a record  surplus in storage.


Baker Hughes Rotary Rig Count For Natural Gas

Weekly Drilling Rig Update: Active U.S. gas rig count released by Baker and Hughes for the week ending March 9, 2012 was 670 rigs. The count is 212 rigs lower than the count reported this same week last year. We are 41% below the five-year average gas rig count of 1,128.


NYMEX Natural Gas Monthly Settlements For the Past 12 Months

(Price per therm at the well-head)

This was the closing price of gas at the well head for each of the past 12 months. The closing price for a month occurs on the 3rd business day prior to the start of the month. 

April-11

$0.4240

Aug-11

$0.4370

Dec-11 

$0.3364

May-11

$0.4377

Sept-11

$0.3857

Jan-12 

$0.3084

Jun-11

$0.4326

Oct-11

$0.3759

Feb-12 

$0.2678

July-11

$0.4357

Nov-11

$0.3524

Mar-12

$0.2446


NYMEX Values Per Month For the Forward 12 Months

Thursday, March 15, 2012

(NYMEX - Price per therm at the Henry Hub well-head)

April-12

$0.2279

Sept-12

$0.2714

Feb-13

$0.3487

May-12

$0.2420

Oct-12

$0.2783

Mar-13

$0.3468

June-12

$0.2537

Nov-12

$0.3000

12-month

$0.2903

July-12

$0.2635

Dec-12

$0.3342

11/12-3/13

$0.3355

Aug-12

$0.2687

Jan-13

$0.3478

Crude Oil

$105/barrel 


NYMEX Graph For Natural Gas - 12 Month Average Price Per Therm at the Well-Head

(Excludes Interstate Transportation)

 


PJM Electricity

Graph - PJM 12-Month Average Peak Power Price

On-Peak 1 Year Forward Price

 


Weather

Local Heating Degree Days*

 

Heating Degree Days** 

 

Oct-11

Nov- 11

Dec - 11

Jan - 12

Feb - 12

Mar- 12 

 Actual

212 

369

613

746

595

 

 Normal

205 

466

786

899

728

 

 Departure from Normal

3.4% 

20.8%

22%

17%

18%

 

Colder

Warmer

Warmer

Warmer 

Warmer

 

**Heating degree days are calculated by comparing the day’s average temperature to a 65 degree baseline. If the day’s average temperature is above 65, there are no heating degree days that day. If the day's average temperature is less than 65 degrees, subtract the average temperature from 65 to find the number of heating degree days for that day.