Heat lifts US natural gas prices

Sam Fletcher
Senior Writer

Natural gas futures prices escalated to a 5-week high July 26, peaking at $6.90/MMbtu in intraday trading on the New York Mercantile Exchange before closing at $6.89/MMbtu, up 47.8¢ for the day. The increase came as the August contract neared expiration amid predictions of continued hot weather and expectations of a small build in US gas storage.

Instead, the Energy Information Administration on July 27 reported the withdrawal of 7 bcf of natural gas from US underground storage in the week ended July 21, compared with an injection of 59 bcf the previous week and a revised injection of 39 bcf in the same period last year.

That marked the first-ever withdrawal of gas from storage in July or August and was caused in part by all-time high electric generation of 96,314 Gw that week with temperatures nearly 30% higher than normal, said analyst Robert S. Morris, Banc of America Securities LLC, New York. "The record demand for power forced all available generation capacity, including a significant number of less efficient natural gas peaker units, to run in many areas," he said.

US gas storage exceeded 2.7 tcf as of July 21, up by 379 bcf from year-ago levels and 490 bcf above the 5-year average. But if extreme summer temperatures were to persist, Morris said, demand "would preclude storage levels from approaching 3.6 tcf on Nov. 1."

Analysts at Simmons & Co. International, Houston, also expect hotter-than-normal weather, "similar to the 2005 summer," to eliminate much of the potential gas storage overhang this summer. Higher oil prices could trigger fuel-switching to cheaper natural gas, increasing demand and reducing storage by another 150 bcf, they said in a June 23 report.

That would be partially offset by increased US imports of LNG. Meanwhile, said Simmons analysts, "Assuming no hurricane activity, we expect natural gas prices to remain in the $5-8/MMbtu range."

On the other hand, Simmons & Co. said, "A mild summer would reduce demand for electricity and create a battle between natural gas-fired generation and coal-fired generation to serve a more modest load. It would also reduce the demand for peaking generation, thus limiting the demand from residual fuel oil switching. Assuming no hurricanes, the reduced demand would negatively impact prices and raise the potential that LNG is diverted to other international locations."

Gasoline use
In addition to increasing demand for natural gas, the recent heat wave across most of the US will increase gasoline consumption through vehicle air conditioning, said Jacques Rousseau, senior energy analyst at Friedman, Billings, Ramsey Group Inc., Arlington, Va.

Based on a resurrected 2002 report on a study by the National Renewable Energy Laboratory of the US Department of Energy, Rousseau said, "Vehicle air conditioning accounts for 6% of total gasoline consumption in the US on average during the year and for upwards of 15% during the summer months (June-August). For a conventional vehicle, using air conditioning can increase fuel consumption by 35% (or drop fuel efficiency by 26%)."

The US East Coast Petroleum Administration for Defense District (PADD 1) accounts for 40% of the vehicle air conditioning demand since it has the most vehicles "and the top consuming state, Florida," Rousseau said. "For the summer of 2006, vehicle air conditioning should consume about 1.4 million b/d of gasoline, according to our estimates, and could be a surprise demand driver in the next few weeks."

Prices seesaw
Energy prices fluctuated in late July as traders tried to balance supply and demand factors while the war between Israel and the Hezbollah guerrillas in Lebanon dragged on and ceasefire negotiations foundered. Meanwhile, rebels renewed attacks on oil processing facilities in Nigeria. Royal Dutch Shell PLC shut in another 180,000 b/d of production in Nigeria because of a pipeline leak. The company had 650,000 b/d of Nigerian production shut in, primarily because of civil unrest in the Niger Delta.

"The current Middle East conflict is not the traditional argument over territorial issues. This fight appears to have been designed in Tehran with the intent of creating dissension among the various groups that are currently united by their common opposition to allowing Iran to have nuclear weapons," said Stephen A. Smith of Stephen Smith Energy Associates in Natchez, Miss.

"The standing of US policy across the [Middle East] region is being further eroded, and the situation appears to have gone well past the point when an end of hostilities might have returned affairs to something approximating the prewar status quo," said Paul Horsnell, Barclays Capital Inc., London.

(Online July 31, 2006; author's e-mail: samf@ogjonline.com)

Related Articles

Woodside to buy Apache’s interests in Wheatstone, Kitimat LNG for $2.75 billion

12/15/2014 Woodside Petroleum Ltd. has agreed to acquire interest in the Wheatstone LNG and Kitimat LNG projects, respectively in Western Australia and Britis...

Watching Government: Russia: On the ropes?

12/15/2014 Russia's Dec. 1 cancellation of its South Stream natural gas pipeline was not surprising. European nations have signaled for years that they intend...

Canada Briefs

12/12/2014

Kinder Morgan to deliver natural gas to Corpus Christi Liquefaction

12/11/2014 Kinder Morgan Inc. (KMI) companies Kinder Morgan Texas Pipeline, Kinder Morgan Tejas Pipeline, and Tennessee Gas Pipeline Co. (TGP) have entered in...

Magnolia LNG lets EPC contract to SK E&C USA

12/03/2014 Magnolia LNG LLC parent-company Liquefied Natural Gas Ltd. agreed to an engineering, procurement, and construction contract with SK E&C USA cov...

Pipeline leak dampens Atlantic LNG production

12/01/2014 Atlantic LNG (ALNG) reported a 35% reduction in LNG production because of insufficient natural gas supply from Trinidad and Tobago’s National Gas C...

Real-time monitoring improves LNG inventory measurement

12/01/2014 Kogas has improved the calculation method for determining stocks at its LNG terminals, changing from a sampling method to a real-time monitoring sy...

Watching Government: Greece and energy in Europe

11/24/2014 Amid growing energy supply geopolitics, Greece is a stable anchor within a rapidly destabilizing region, Yannis Maniatis, its Environment, Energy, ...

Freeport LNG nears construction phase

11/19/2014 Freeport LNG Expansion LP expects later this month to close on financing and begin construction on the first two trains of its natural gas liquefac...

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