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

Lukoil taps new blending technology for Russian refinery

07/09/2015 OAO Lukoil has selected Honeywell Process Solutions (HPS), a division of Honeywell International Inc., to provide process control technology design...

Transco seeks FERC approval for New York Bay Expansion project

07/09/2015 Transcontinental Gas Pipe Line Co. LLC (Transco), a wholly owned subsidiary of Williams Partners LP, has filed an application with the US Federal E...

House Oversight panel subpoenas Kerry for Keystone XL documents

07/09/2015 The US House Oversight and Government Reform Committee issued a subpoena to US Sec. of State John F. Kerry for reports, recommendations, letters, a...

Ending crude export ban would help rural US areas, House panel told

07/09/2015 Rural US communities generally have benefited from the nation’s crude oil production renaissance, and potentially could be helped more if restricti...

MOL completes Ithaca Norge acquisition

07/09/2015 MOL Group, Budapest, has completed its acquisition of Ithaca Petroleum Norge from Ithaca Energy Inc. for $60 million plus possible bonuses of up to...

AER orders Apache Canada to address integrity of pipeline system

07/08/2015 Alberta Energy Regulator has directed Apache Canada Ltd. to address the integrity of its pipeline management system because of “failure to follow p...

API releases pipeline safety recommended practice

07/08/2015 The American Petroleum Institute released a pipeline safety recommended practice that it developed with engagement from the US Pipeline and Hazardo...

ORPIC lets contract for Sohar refinery expansion

07/08/2015 Oman Oil Refineries & Petroleum Industries Co. (ORPIC), through a contractor, has let a contract to Metso Corp., Helsinki, to supply valve tech...

BLM approves ROW for Elko gas pipeline expansion project

07/07/2015 The US Bureau of Land Management’s Tuscarora, Nev., field office signed a decision record approving a right-of-way for Paiute Pipeline Co.’s (PPC) ...
White Papers

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

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
Available Webcasts


Operating a Sustainable Oil & Gas Supply Chain in North America

When Wed, Oct 7, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.

register:WEBCAST


The Resilient Oilfield in the Internet of Things World

When Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.

register:WEBCAST



On Demand

Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors

register:WEBCAST


Driving Growth and Efficiency with Deep Insights into Operational Data

Wed, Aug 19, 2015

Capitalizing on today’s momentum in Oil & Gas requires operational excellence based on a clear view of what your business data is telling you. Which is why nearly half* of oil and gas companies have deployed SAP HANA or have it on their roadmap.

Join SAP and Red Hat to learn more about using data to drive process improvements and identify new opportunities with the SAP HANA platform running on Red Hat Enterprise Linux. This webinar will also show how your choice of infrastructure impacts the performance of core business applications and your ability to achieve data-driven insights quickly and reliably.

*48% use SAP, http://go.sap.com/solution/industry/oil-gas.html

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