According to the US Energy Information Administration (EIA), following a short lived price increase in November, natural gas prices have dropped to their lowest levels since September 2012, reflecting strong domestic production and inventory builds.
The 2013 – 2014 winter’s sustained cold weather and record drawdown of inventories led Henry Hub prices to spike to five year highs, peaking at a monthly average of US$6.00/million Btu in February 2014. Heading into the summer injection season, inventories were at an 11 year low and almost 1 trillion ft3 lower than five year (2009 – 2013) average levels. Prices remained elevated through the spring and early summer of 2014, but dropped as domestic production continued to set new records and inventory builds remained strong.
The 2014 – 2015 winter heating season began with colder than average temperatures in November. Prices at the national benchmark Henry Hub rose to the mid-US$4/million Btu range, possibly reflecting supply concerns and expectations of another extremely cold winter. For the week ending 21 November 2014 inventory levels fell by 162 billion ft3, tying the largest weekly November withdrawal on record. Since then, smaller than average withdrawals for most of this winter have brought stock levels back above year ago levels and closer to five year average levels.
In recent weeks, prices have dropped to the lowest levels in more than two years; on 23 December 2014, day ahead Henry Hub spot prices fell to US$2.97/million Btu, the first time they were below US$3/million Btu in more than two years. Since the end of December, both spot and futures prices have hovered around the US$3 mark, and closed at US$2.92 and US$2.88, respectively, on 26 January. Preliminary data sources show increased natural gas production through early winter, with production rebounding quickly from freeze offs in November and early January.
Based on National Oceanic and Atmospheric Administration (NOAA) projections for close to normal weather for the rest of winter, the January Short Term Energy Outlook (STEO) expects inventory levels will be close to the five year average for the rest of winter and will enter the summer injection season at 1665 billion ft3. The strength in inventory builds, as well as expectations for continued production growth, contribute to relatively low forecasted prices throughout the year. EIA also expects monthly average prices will remain below US$4/million Btu through most of 2015 and 2016.
Adapted from a press release by Emma McAleavey.
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