Natural Gas Prices - Why they are going up
Posted: Fri Jun 03, 2016 10:21 am
Natural gas prices are now going up and I believe we will see better than $3.00/mmbtu by the end of November. As I have posted here many time, today's natural gas prices are "unsustainable" because they are not high enough to insure development of the future supply we will need. Heading into next winter, the U.S. gas market will be 4 to 6 Bcf per day tighter because supply is falling and demand is going up. In 2015 the U.S. consumed an average of ~80 Bcf per day. This year, demand is estimated to be over 83 Bcf per day and 100 Bcf per day by 2020. - Dan
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Natural gas is making an effort to break out of the doldrums in the last two, probably aided by two factors: Declining monthly production and the increased possibility that major sections of the US may get either warmer than previously forecast weather this sumeer or colder than normal weather this coming winter (or both). \
Allen Brooks had a very good overview of the weather situation in this morning’s “Musing From the Oil Patch” we sent out. We will not repeat it here. But the June 1 edition of the Browning World Climate Bulletin largely reinforces Allen’s commentary. While copyright restrictions prohibit us from sending out the Bulletin as an attachment, here is a summary:
Summary: With El Niño conditions gone and Mt. Pavlof’s debris retreating north with the polar jet stream, North America is switching from a cooler, wetter late spring to a hotter, drier summer.
It’s summer ‒ prepare for the heat. East to west, North America is surrounded by hot water and it is time to simmer. El Niño, which brings cooler summer conditions, is fading. The impact of the polar jet stream, which has been altered by the March eruption of Mt. Pavlof, is retreating north. The factors that cooled so much of North America in April and May are retreating and the hot marine air masses will surge inland.
On the production front, the EIA 914 monthly report of domestic natural gas production showed total natural gas production fell 1%, from 92.011 Bcf/day in February to 91.060 in March. Current weekly numbers show that the volume should fall further when reports for subsequent months are compiled. Texas, Louisiana, and the tri-state area of Ohio/PA/WV accounted for an amount equal to the whole drop.
BOTTOM LINE: There is a reasonable chance that the US will be able to make a major reduction in the huge “overhang” of natural gas in storage left over from last winter, similar to 2012. Once November comes, the inventories may be able to allow the draw on storage to “reset”, with production no longer climbing every month.
If natural gas in storage returns to the 5-year average, we could see $4.00/mcf in the first quarter of 2017.
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Natural gas is making an effort to break out of the doldrums in the last two, probably aided by two factors: Declining monthly production and the increased possibility that major sections of the US may get either warmer than previously forecast weather this sumeer or colder than normal weather this coming winter (or both). \
Allen Brooks had a very good overview of the weather situation in this morning’s “Musing From the Oil Patch” we sent out. We will not repeat it here. But the June 1 edition of the Browning World Climate Bulletin largely reinforces Allen’s commentary. While copyright restrictions prohibit us from sending out the Bulletin as an attachment, here is a summary:
Summary: With El Niño conditions gone and Mt. Pavlof’s debris retreating north with the polar jet stream, North America is switching from a cooler, wetter late spring to a hotter, drier summer.
It’s summer ‒ prepare for the heat. East to west, North America is surrounded by hot water and it is time to simmer. El Niño, which brings cooler summer conditions, is fading. The impact of the polar jet stream, which has been altered by the March eruption of Mt. Pavlof, is retreating north. The factors that cooled so much of North America in April and May are retreating and the hot marine air masses will surge inland.
On the production front, the EIA 914 monthly report of domestic natural gas production showed total natural gas production fell 1%, from 92.011 Bcf/day in February to 91.060 in March. Current weekly numbers show that the volume should fall further when reports for subsequent months are compiled. Texas, Louisiana, and the tri-state area of Ohio/PA/WV accounted for an amount equal to the whole drop.
BOTTOM LINE: There is a reasonable chance that the US will be able to make a major reduction in the huge “overhang” of natural gas in storage left over from last winter, similar to 2012. Once November comes, the inventories may be able to allow the draw on storage to “reset”, with production no longer climbing every month.
If natural gas in storage returns to the 5-year average, we could see $4.00/mcf in the first quarter of 2017.