October gas contract ends near 4-year low

Sam Fletcher
Senior Editor

The expiring October natural gas contract dropped to a near 4-year low on the New York Mercantile Exchange during the last week of September, while crude prices continued to fluctuate as traders speculated whether the Organization of Petroleum Exporting Countries might soon cut production.

The October natural gas contract expired at $4.20/MMbtu Sept. 27 after trading as low as $4.07/MMbtu during that session in anticipation of a continued build in winter storage. The November gas contract continued to fall, down by 27.7¢ to $5.39/MMbtu Sept. 28 on NYMEX.

Gas storage
The US Energy Information Administration reported the injection of 77 bcf of gas into US underground storage in the week ended Sept. 22, down from 93 bcf injected the previous week (OGJ Online, Sept. 28, 2006). US gas storage then stood at nearly 3.3 tcf, up by 377 bcf from year-ago levels and 354 bcf above the 5-year average.

That reduced injection rate "reflects the start of some 'line pack' issues [gas occupying pressurized sections of the pipeline network] along with perhaps some constrained wellhead output concurrent with the pipeline pressure builds and, in our opinion, is not the result of any sudden sharp uptick in demand due to the drop in natural gas prices," said Robert S. Morris, Banc of America Securities LLC, New York.

Analysts with Raymond James & Associates Inc. in Houston said, "We now anticipate. . .gas storage levels will be between 3.4-3.6 tcf at the end of October. Because this is likely to test the limits of full storage (non-coincidental storage from each region over the past 12 years has only totaled as high as approximately 3.467 tcf including salt dome additions), gas should still be extremely volatile over the course of the next 6 weeks."

Analysts at Friedman, Billings, Ramsey & Co. Inc. (FBR) in Arlington, Va., said they see similarities between the present gas market and 2001 "when gas fell from $10.20 to $1.74 but rebounded in 2002, even as storage was at record levels." They said, "We maintain our bullish outlook on the E&P sector but recognize that the near term looks volatile."

FBR analysts said, "Multiple near-term catalysts should positively influence the commodity. Gas storage is showing a 380 bcf overhang (7 days demand), which should be whittled away by declining production, rebounding industrial demand, and normal winter weather.. . . High initial decline rates across major US basins provide further cover, despite robust rig counts and capital programs. We have begun to see producers shutting in marginal wells as prices hover below cash margins in high-cost basins."

In a separate report in late September, EIA said US gas reserves grew by 6% in 2005, the largest annual increase in 35 years, with onshore gas reserves up for the seventh consecutive year, offsetting a 10% decrease in gas reserves in US waters of the Gulf of Mexico (OGJ Online, Sept. 28, 2006). However, Morris said a survey in May of Banc of America Securities' group of 55 independents and 12 major integrated companies, representing 58% of total US gas reserves, showed their proven reserves (including revisions and "improved recovery") increased 12% in 2005.

Total US gas production declined 4% in 2005 because Hurricanes Katrina and Rita shut in 80% of gulf production, EIA said. Gulf gas production was in 10% annual decline prior to those hurricanes. EIA reported US crude reserves also increased in 2005 for the first time in 3 years.

Oil price fluctuates
The November contract for benchmark US light, sweet crudes temporarily touched $64/bbl Sept. 28 on reports from Nigeria of possible OPEC action to shore up prices. But it closed at $62.76/bbl, down 20¢ for the day on NYMEX after OPEC dispelled those rumors. "We believe the commotion could be an attempt to 'talk up the markets' in the heat of considerable plunges in crude prices, and if any OPEC producer were to reduce supply, it would likely be countries that are currently producing above their quota (Saudi Arabia and other Persian Gulf producers), as opposed to Nigeria, where output has declined by 800,000 b/d in the last few months," said Raymond James analysts.

Meanwhile, US gasoline demand trends remained positive, with gasoline imports up "a surprisingly large 660,000 b/d (83%)" during the week ended Sept. 22, said FBR analysts. "Given the large decline in US refined product margins that has occurred over the past month and the commencement of European maintenance season, we expect imports to decrease materially over the coming weeks," they said.

(Online Oct. 2, 2006; author's e-mail: samf@ogjonline.com)

Related Articles

Cidade de Itaguai FPSO anchors in Lula field

07/07/2015 Petroleo Brasileiro SA (Petrobras) reported that the Cidade de Itaguai floating production, storage, and offloading vessel has arrived at the Irace...

Statoil lets Johan Sverdrup drilling contract to Baker Hughes

07/07/2015

Statoil ASA has let an integrating drilling contract valued at 1.5 billion kroner to Baker Hughes Norway for the Johan Sverdrup development.

AER shuts in 16 Murphy Oil sites in Peace River region for noncompliance

07/07/2015 Alberta Energy Regulator said it has shut in or partially shut in 16 sites operated by Murphy Oil Co. Ltd. in the Peace River region. The sites wer...

MARKET WATCH: NYMEX, Brent oil prices take dive on world oil oversupply concerns

07/07/2015 US light, sweet crude oil prices plummeted more than $4/bbl on the New York market July 6, marking a 5-month low, while Brent crude oil prices on t...

WAFWA: Aerial survey finds lesser prairie chicken population grew

07/06/2015 A recent range-wide aerial survey found the lesser prairie chicken population rose 25% from 2014 to 2015, the Western Association of Fish & Wil...

Production ramps up from Sunrise oil sands project

07/06/2015 Husky Energy Inc., Calgary, reported that 25 well pairs are now on production at its Sunrise oil sands project in northeastern Alberta. Steaming is...

CERI: Energy, operational efficiencies possible in Canadian oil, gas

07/06/2015 Measures can be taken by operators in the expanding resource-intensive Canadian oil and gas sector to improve both energy efficiency and operationa...

Woodside lets contracts for Browse LNG project

07/06/2015 Woodside Petroleum Ltd. has let more contracts for the Browse floating LNG project offshore Western Australia. The contracts, awarded to a Technip-...

Emerging producers offered guidelines for governance

07/06/2015 Like most worthy endeavors, governing oil and gas activity at the national level is easier said than done-especially where oil and gas never before...
White Papers

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

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
Available Webcasts

On Demand

OGJ's Midyear Forecast 2015

Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST


Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

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