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

Kuwait lets storage contract for Clean Fuels Project

03/05/2015 Kuwait National Petroleum Co. (KNPC), through its subcontractors, has let a contract to CB&I, Houston, to build petroleum product storage as pa...

USW, Shell to resume talks amid ongoing labor strike at US refineries

03/05/2015 The United Steelworkers union (USW) and Royal Dutch Shell PLC, which serves as lead company for National Oil Bargaining negotiations, have agreed t...

Venezuela, Trinidad and Tobago sign energy accord

03/05/2015 Venezuela and neighboring Trinidad and Tobago have signed an agreement that will enable both countries to develop the Manakin-Cocuina natural gas f...

EIA: US petroleum product exports rise for 13th consecutive year

03/05/2015 US exports of petroleum products averaged a record 3.8 million b/d) in 2014—an increase of 347,000 b/d from 2013—based on data from the US Energy I...

Magnum Hunter names reservoir engineering vice-president

03/05/2015 Magnum Hunter Resources Corp., Houston, has appointed Charlie Gibson as vice-president of reservoir engineering, effective. He will report to Gary ...

Senate vote to override Obama’s Keystone XL veto falls 5 votes short

03/05/2015 The US Senate’s vote to override President Barack Obama’s veto of legislation authorizing construction of the proposed Keystone XL (KXL) crude oil ...

ExxonMobil spending down 12% to $34 billion

03/04/2015

ExxonMobil Corp. plans $34 billion in capital spending during 2015, representing a 12% decrease from 2014.

Western Australia’s EPA approves Gorgon LNG fourth train

03/04/2015 The Environmental Protection Authority of Western Australia (EPAWA) has approved plans for expansion of the Gorgon-Jansz LNG project on Barrow Isla...

Bear Head LNG requests DOE permits to export US natural gas

03/03/2015 Liquefied Natural Gas Ltd.’s wholly owned subsidiaries, Bear Head LNG Corp. and Bear Head LNG LLC (USA), have filed an application with the US Depa...
White Papers

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...

6 ways for Energy, Chemical and Oil and Gas Companies to Avert the Impending Workforce Crisis

As many as half of the skilled workers in energy, chemical and oil & gas industries are quickly he...
Sponsored by
Available Webcasts

On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.

register:WEBCAST


Emerson Micro Motion Videos

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