Natural gas futures fell to their lowest price in 16 weeks in New York on 27 June, as stockpiles were up higher than expected and demand remains sluggish.
We’re looking at nearly the second straight month of declines for US natural gas. On 27 June, the US Energy Information Administration (EIA) said inventories had risen 95 billion cubic feet in the week ending 21 June to 2.533 trillion cubic feet. Analysts had only expected a rise of 90 billion cubic feet.
Mild summer weather is reducing demand for natural gas.
On 28 June, natural gas gained 19 points to trade at 3.602 on new inventory reports and a lower dollar.
However, natural gas inventories were 17.1% lower than the same time last year.
On 1 May, gas prices were at a 21-month high of $4.444 per million Btu.
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In the meantime, gas production (marketed) is expected to rise 1.2% to a new record this year, with new shale gas wells coming online.
It’s bad news for natural gas producers, but good news for utilities and manufacturers. The trend, however, has investors looking instead to oil and gas companies who are shifting the balance of the focus back to oil to re-risk potential losses due to natural gas prices.
Here’s one thing we like, though, if we can look a bit further into the future: Mexican imports of US natural gas. Since 2008, Mexican imports of US natural gas have risen 92%, and this is an upward trend.
In 2012, US gas exports to Mexico reached nearly 1.7 billion cubic feet per day, and three new pipelines are being built with the aim of boosting this capacity significantly—perhaps doubling it at the least. Some analysts predict that Mexico could end up importing 10% of US natural gas production.
Later this summer, we will see the US government boost its gas export capacity to Mexico thanks to the approval of a major new pipeline that crosses the border from western Texas. The pipeline will have a capacity of 0.37 billion cubic feet per day. The Federal Energy Regulatory Commission (FERC) approved an application from Kinder Morgan’s El Paso Natural Gas Co. to begin operation on the export pipeline on 14 June.
Between 2012 and 2013, three pipelines crossing from south of the Eagle Ford Shale and another in West Texas’ Permian Basin accounted for significant increases in monthly gas exports to Mexico. This summer should see an additional 10% increase in gas exports to Mexico with the addition of the Kinder Morgan pipeline.
Year on year, US natural gas exports to Mexico have increased by 0.34 Bcf/d, settling currently at about 1.81 Bcf/d.
It is this that has the best chance of nudging natural gas prices and de-risking of the key producers focusing on gas in US shale plays. So look to Mexico as the only foreseeable savoir on the natural gas scene right now—and look to those producers who are exporting across the border.
By. Charles Kennedy of Oilprice.com