North America natural gas market swoons anew; prices back to 2001 levels


Natural gas producers are finding themselves the victims of their own success as natural gas prices continue to slide as the market is flooded with gas. Some cash prices reached more than 10-year lows on Friday.

The abundant amounts of gas -- as seen in the record US storage levels -- and resulting low gas prices also don't appear to be going away any time soon, and many in the industry seem befuddled as to what to do in the short-term to use more gas. There are plenty of plans for the future of the industry, but what about the here and now?

Cash for the Henry Hub, the benchmark of the gas industry, fell to average $1.82/MMBtu Friday morning, the lowest price since Nov. 30, 2001, when it averaged $1.75/MMBtu, according to Platts historical data.

Even points that are traditionally at a premium on the national gas market--like Transcontinenal Gas Pipe Line zone 6-New York and the Algonquin Gas Transmission city-gates -- have been drifting lower over the past several weeks. The warm winter helped to keep prices low, and on Friday the Algonquin city-gates averaged around $2.01/MMBtu (lowest level since Nov. 26, 2001, when the price was $1.95/MMBtu) and Transco zone 6-New York averaged $1.96 (lowest level since Dec. 11, 1998).

It's not just US prices that are low, either. Canadian prices are also dropping, with AECO-Albert falling almost 10 cents to average in the mid-C$1.40s/Gj, a region trader said Friday morning. According to Platts data, that's the lowest price for the point since July 2002, when it was C$1.13/Gj.

So what to do with all the gas? One option is to stuff it into storage, but the Energy Information Administration estimated Thursday that gas storage levels at more than 2.5 Tcf for the week ending April 13, a level usually not seen until much later in the injection season.

If storage is full, then the other option is to use the gas, and for the spot market, daily use is largely tied to weather-driven demand. But meteorologist Joe Bastardi, chief forecaster with WeatherBell Analytics, said it looks like a milder summer is on tap for this year. Even if the summer is a scorcher, there's no guarantee it would make a big difference in gas consumption. Last year was ridiculously hot, air conditioning units were running on high across a lot of the country, and the US still ended up with record gas in storage.

At the LDC Gas Forum Southeast in Atlanta earlier this week, a lot of industry leaders discussed where increased consumption could come from: compressed natural gas vehicles, more power generation after federal regulations come on board, exporting liquefied natural gas. But all of these things take time; infrastructure is still lacking for widespread use of CNG cars, gas is still competing with coal for power generation, and LNG export terminals take years to build.

What no one at the forum seemed to have was an answer for what will happen this year. Producers are already shifting over to more wet gas production, which has valuable ethane, propane, butane and natural gasoline, but the associated gas produced will still add to the gas glut in the country. More storage is coming on line, but it's not enough to make a serious difference with the total amount of storage used. If gas is dirt-cheap and the US has tons of it and we still can't move it off the shelves, so to speak, who will buy it up and use it?

 

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