Volume 12, Issue 31 | August 29, 2014

Editor's Note

Nothing Lasts Forever

Week in Review for August 22-28, 2014

After four weeks of relatively flat pricing, it seems that prices may be moving up. For this seven-day report period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) rose 1.66% closing at $0.4035/therm. Meanwhile, the 12-month average price for peak power on the PJM also posted an increase, closing up 1.32%. This week's price increases can likely be attributed to the surge in temperatures extending from Texas to the Northeast United States and yesterday's underwhelming storage report.

Yesterday, the Energy Information Administration (EIA) reported a respectable build of 75 Bcf in working storage. Though this injection was stronger than the five-year average of 58 Bcf, it still fell short of analyst's expectations of an injection in the 76-80 Bcf range. This smaller-than-expected injection can be linked to increased demand for natural gas at the power plants during this period of hot weather.  It appears, at least for now, that prices will continue to be driven largely by a combination of short-term weather forecasts and storage reports.

However, with Labor Day weekend now upon us, and with the end of the traditional injection season within sight, there is another variable that could soon come into play: pipeline capacity. Natural gas production is at an all-time high thanks to the advent of horizontal drilling and hydraulic fracturing in the Marcellus Shale deposits. This is great news considering the increased demand from homes, businesses and power plants (the latter of which now accounts for 31% of gas demand according to EIA). Unfortunately, despite record production levels, pipeline capacity and the number of firm contracts available for transportation remain more or less fixed. In the event of extreme winter weather this could result in many being forced to play the spot-sales game, which as we saw last winter can result in record-high prices. It might be a good time to consider early renewal options to help mitigate potential winter risk.


Natural Gas Fundamentals

Natural Gas Storage Update:

 

 

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 

2,630

2,555

75

3,120

3,148

This week's injection was 75 Bcf.  This injection fell short of expectations yet still outpaced the five-year average injection of 58 Bcf. This injection continues the trend of above-average builds that we have experienced over the course of the summer. At this point, we are at 19 in a row.

 

 


Rig Count for Natural Gas

Weekly Drilling Rig Update: The active U.S. gas rotary rig count for natural gas released by Baker and Hughes for the week ending August 22, 2014 was 330 rigs. This was an increase of nine rigs from the previous week. The count is 57 rigs lower than the count reported this same week last year. We are 55% below the five-year average gas rig count of 729.


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. 

Oct-13

$0.3498

Feb-14

$0.5557

June-14

$0.4619

Nov-13

$0.3497

Mar-14

$0.4855

July-14

$0.4400

Dec-13

$0.3818

Apr-14

$0.4584

Aug-14

$0.3808

Jan-14

$0.4407

May-14

$0.4795

Sept-14

$0.3957


NYMEX Values per Month for the Forward 12 Months

Thursday, August 28, 2014

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

Oct-14

$0.4044

Mar-15

$0.4161

Aug-15

$0.3929

Nov-14

$0.4101

Apr-15

$0.3890

Sept-15

$0.3917

Dec-14

$0.4186

May-15

$0.3871

12-month avg.

$0.4035

Jan-15

$0.4258

June-15

$0.3894

11/2014-3/2015

$0.4211

Feb-15

$0.4240

July-15

$0.3923

Crude Oil

$ 95/barrel 


NYMEX Graph for Natural Gas - 12 Month Average Price per Therm at the Louisiana Well-Head

(Excludes Interstate Transportation)



PJM Electricity

PJM Graph for Electricity - 12 Month Average Peak Power Price

On-Peak 1 Year Forward Price



Weather

Local Cooling Degree Days*

 
 
 


Cooling Degrees Day** 

 

May - 14

June 14

July - 14

Aug- 14

Sept- 14

Oct - 14

 Actual

  148

 372

453 

 

 

 Normal

 108

 314 

457 

 

 Departure from Normal

 37%

   18% 

         1%

 

 

 

 Warmer

 Warmer

Cooler 

 

**Cooling degree days are calculated by comparing the day’s average temperature to a 65 degree baseline.  If the day’s average temperature is below 65, there are no cooling degree days that day.  If the average temperature is greater than 65 degrees, then subtract 65 from the average temperature to find the number of cooling degree days.