Record April natural gas prices point to near-to-midterm market strength

Whatever happened to the April doldrums for natural gas prices? This time of year has traditionally been a dead spot in the calendar for natural gas prices, coming off the heating season and ahead of the cooling season. Yet natural gas prices are flirting with $3/MMbtu, reaching a record high for this month.

The question now becomes: How high will natural gas prices go this summer if futures contracts are already trading at $3? As always, demand is a key, but that can usually be predicted with some confidence, within a range of weather patterns and unusual outages of competing energy sources. But even more important these days is the direction of supply. What's really driving the natural gas market these days is lagging wellhead deliverability. So it becomes critical to get a handle on where production levels are going to settle in the US and Canada.

We discussed the current market fundamentals for the natural gas market in this space last week. This week, let's turn to the outlook for the near term and midterm, viewed initially through the prism of supply.

Ziff Energy Group, Houston, recently conducted its second annual gas industry outlook survey, focusing on gas prices, supply, and demand in 2000. The survey covers the entire spectrum of the gas industry, including 124 companies in the US and Canada from producers to pipelines to storage operators, gas marketers, local distribution companies, and end users.

Supply-demand outlook

A little more than half of US producers queried in the survey expect to produce at least 5% more at yearend, while 19% expect production increases of more than 15%.

In Canada, more than 70% of the producers surveyed expect to hike their output by 5% or more, and about 25% project a production boost of at least 15%.

At least half of the survey respondents think that net Canadian exports will increase by as much as 700 MMcfd in 2001, while a third reckons that Canadian exports will increase by 700-900-MMcfd. Looking at the biggest impending increment of new capacity, the Alliance Pipeline, which is expected to start up in fourth quarter 2000, will have a throughput capacity of 1.3 bcfd. Alliance, says Ziff, is likely to carry more volumes of Canadian export gas than is forecast for the growth in Canadian net exports because it will divert some gas from other pipelines exiting Western Canada.

Respondents to Ziff's survey predicted that US gas sales will grow moderately this year and somewhat more in 2001. About 70% of the survey respondents predicted sales growth at 1-3% for both years, favoring the higher end of that range for 2001.

As for Canada, the survey results suggest more modest expectations, at about 1-2%-with 20% forecasting little or no growth. With regard to gas sales directed toward the power generation sector, almost all respondents think that gas sales will increase by at least 2%/year, and 40% expect growth of at least 4%/year in this dynamic sector of the market.

Price outlook

There is a consensus on the outlook for natural gas prices this year, and it settles in at the end of the year nicely almost near $3/MMbtu. About 94% of the Ziff survey respondents expect New York Mercantile Exchange futures prices to close out the year above $2.73, and 40% of those surveyed expect NYMEX prices to end the year at more than $3.13.

According to Ziff, "Few of the respondents to our survey expect gas prices to decline, but most are less concerned than (they were) last year that prices may put gas sales at risk."

That encouraging interpretation is underscored by the survey result that almost all respondents believe that gas sales to the electricity sector would become noncompetitive at a burner tip price of $3.50/MMbtu. That contrasts dramatically with a comparable expectation for that occurrence at a price range of $2.75-3.00/MMbtu. (It also points to the role of expected continuing high oil prices in the outlook for natural gas prices.)

One interesting aspect of the survey is that Canadian respondents expect to see a lower level of net export growth than do US respondents; it may be not be too much of a strength to conclude, then, that US respondents are overestimating near-term supply growth and thus underestimating their price expectations.

In the transportation sector, respondents to Ziff's survey believe that gas supply growth poses the biggest hurdle to registering any increases in natural gas pipeline capacity. By contrast, a year ago, survey respondents considered price differentials to be the biggest hindrance to expanding pipeline capacity.

On the other hand, survey respondents contend that the biggest single potential challenge to increasing gas supply is a return to natural gas prices below $2.25/MMbtu.

At a time of self-fulfilling prophecies in the energy commodities business, that prediction, however, doesn't look like much to sweat over.

OGJ Hotline Market Pulse
Latest Prices as of April 14, 2000

Click here to enlarge image

null

Click here to enlarge image

null

Nymex unleaded

Click here to enlarge image

null

Nymex heating oil

Click here to enlarge image

null

IPE gas oil

Click here to enlarge image

null

Nymex natural gas

Click here to enlarge image

null

Related Articles

Legislative vote delays St. Croix refinery sale

12/01/2014 The Senate of the 30th Legislature of the US Virgin Islands has voted unanimously to send back a proposed agreement that would provide for the rest...

Buyer emerges for shuttered St. Croix refinery

11/17/2014 Hovensa LLC, the joint venture of Hess Corp. and Petroleos de Venezuela SA (PDVSA), has found a buyer that hopes to restart its idled 500,000-b/d r...

Lone Star begins construction on third Mont Belvieu frac unit

11/06/2014 Lone Star NGL LLC, a joint venture of Energy Transfer Partners LP (70%) and Regency Energy Partners LP (30%), both of Dallas, has begun constructio...

Aux Sable to expand Illinois plant’s fractionation capacity

11/04/2014 Aux Sable Liquid Products LP, Calgary, will expand fractionation capacity at its Channahon, Ill., natural gas plant by 24,500 b/d, the company said...

Cedigaz: Worldwide gas storage capacity up 5%

10/20/2014 Worldwide working gas capacity totaled 399 billion cu m (bcm) on Jan. 1, representing 5% growth over the previous year, according to Cedigaz's late...

Woodford gathering, processing plans advance

10/16/2014 Tall Oak Midstream LLC subsidiary TOMPC LLC has secured financing for building and expanding Tall Oak’s gathering and processing in the central nor...

Exterran joins Woodford Express to build Oklahoma gas plant

10/14/2014 Exterran Holdings, Houston, will join Woodford Express LLC, a subsidiary of Xplorer Midstream LLC, Oklahoma City, to build a 210-MMcfd natural gas ...

Midstream unit awards North Louisiana gas plant contract

10/14/2014 PennTex North Louisiana LLC, a unit of PennTex Midstream Partners LLC, Houston, has selected UOP LLC, Des Plaines, Ill., to engineer, procure, and ...

US refiners could process more light, tight crudes, study finds

10/13/2014 US refiners will have the capacity by 2020 to process 3.1-4.3 million b/d more of light, tight crude oil (LTC) than in fourth-quarter 2013, accordi...

White Papers

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts


On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.

register:WEBCAST


US HYDROCARBON EXPORTS Part 3 — LNG

Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected