• 4 mintues Texas forced to have rolling brown outs. Not from downed power line , but because the wind energy turbines are frozen.
  • 7 minutes Forecasts for oil stocks.
  • 9 minutes Biden's $2 trillion Plan for Insfrastructure and Jobs
  • 13 minutes European gas market to 2040 according to Platts Analitics
  • 2 hours U.S. Presidential Elections Status - Electoral Votes
  • 3 hours 1 in 5 electric vehicle owners in California switched back to gas because charging their cars is a hassle, new research shows
  • 1 hour *****5 STAR Article by Irina Slav - "The Ugly Truth About Renewable Power"
  • 2 days Americans are not agreement capable.
  • 4 hours GREEN NEW DEAL = BLIZZARD OF LIES
  • 11 hours How US Capitalism Uses Nationalism
  • 1 hour Сryptocurrency predictions
  • 2 hours Forecasts for Natural Gas
  • 20 hours Joe Biden's Presidency
  • 3 days Battery storage 30% cheaper than new gas peaker plants, Australian study finds
  • 11 hours The Painful Death of Coal
Why Natural Gas Won’t Be Replaced Anytime Soon

Why Natural Gas Won’t Be Replaced Anytime Soon

A carbon-tracker report found that…

The Biggest Winners From The Texas Freeze

The Biggest Winners From The Texas Freeze

The cold spell that paralyzed…

Australian LNG Exports To China Are Bouncing Back

Australian LNG Exports To China Are Bouncing Back

Chinese imports of Australian LNG…

Robert Rapier

Robert Rapier

More Info

Premium Content

Why Natural Gas Prices Collapsed

Today I want to provide an update on the natural gas picture, as prices declined sharply at the end of July. I have laid out the argument since last winter that because of the deep inventory hole that developed over the course of the exceptionally cold winter, natural gas prices would remain high relative to last year, and that as a result natural gas producers would likely report higher year-over-year profits. (For background on the inventory picture, see my February column Natural Gas Inventories are Headed Toward Zero).

First, let’s look at what natural gas prices have done since winter. The chart below from the Energy Information Administration (EIA) shows that natural gas prices have been higher this year than they were either of the past two years as expected, but that toward the end of July the price fell sharply.

Henry Hub Gas Price

So what has happened? Two things. The first is that producers have been producing at higher rates than they were either of the past two springs. Thus, on the supply side the situation looks pretty good. In fact, the EIA recently reported that natural gas production in the Marcellus Shale region had exceeded 15 billion cubic feet per day (Bcf/d) for the first time ever.

But the bigger issue — as it was in the winter — has been unseasonable weather. Generally in the summer demand for natural gas spikes as utilities react to increased loads from air conditioners. This summer has been like this past winter — cooler than normal. In fact, this summer is flirting with record cool temperatures across many cities across the US, and that has reduced the demand for natural gas. This has meant that inventories are recovering faster than expected, and that has reduced the fear premium that existed in early spring. Gas inventories are still below normal for this time of year, but the potential for more cool weather has investors betting that inventories will be in good shape once high demand season begins:

Working Gas

Natural gas producers have been reporting higher year-over-year earnings as I expected, but many have sold off over the past month due to concerns about shrinking margins. Natural gas prices have recovered some of the year-over-year premium in recent days — the current price of $3.97 per million British thermal units (MMBtu) is $0.63/MMBtu higher than the price a year ago — but if the summer continues to be cool it is much less certain that premium will be maintained.

One word of caution though is not to be confused by natural gas seasonal pricing effects. When I argue that natural gas prices will be higher, I have always tried to make it clear that I am referring to year-over-year prices, which will impact year-over-year profits for gas producers. But July gas contracts will generally be cheaper than February contracts because of seasonal demand. So you can expect in most cases gas prices to actually decline between winter and summer, but the year-over-year differential is what is important.

Conclusions

My thesis last winter was that low inventories would lead to higher year-over-year natural gas pricing, and that has proven accurate through the end of July. Year-over-year profits for gas producers have been higher. But a cool summer has meant that inventories have headed toward normal levels faster than expected.

Weather is always a short term risk factor in the natural gas market. If this winter resembles last winter, we will again see high natural gas prices, especially if we don’t recover to normal inventory levels by the start of injection season in ~mid-November. (Inventories are still 20% below the 5-year average for this time of year). But as recently as 2012 we had an unseasonably warm winter, and natural gas prices collapsed in response.

If you are a long-term investor in natural gas companies or infrastructure providers, these seasonal fluctuations are not important. Over time, they will average themselves out, and there are a number of factors that argue that natural gas prices will move higher than may be implied by natural gas futures prices.

By. Robert Rapier

Link to Original Article: Why Natural Gas Prices Collapsed


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • Ron Wagner on August 15 2014 said:
    It seems to me that long range worldwide prices will be low. I am talking over the next few decades. I see this because of fracking and horizontal drilling becoming a more widely spread technology worldwide. China will pull out all stops in production and use of CNG and LNG. Europe wants to copy our success. Russia, Africa, Australia, the Middle East et all want to produce use and sell natural gas. This trend will also reduce the preference and pricing of oil and gasoline. CNG and LNG are far less expensive and it is only rational to use a cleaner and less expensive fuel for ships, locomotives, trucks, cars et all.

    See Useful References for The Natural Gas Revolution: https://docs.google.com/document/d/19Yf0MWpo91vrlu-mmJtjB1ERukjJo5W41oi4RZVQBug/edit

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News