Storage uncertainties undercut gas prices

Sam Fletcher
Senior Writer

The January natural gas contract registered the lowest closing price in 10 weeks on the New York futures market after the Energy Information Administration reported the withdrawal of 11 bcf of gas from underground storage in the week ended Dec. 1.

The contract finished at $7.67/MMbtu Dec. 7, down 5.6¢ after trading at $7.58-7.82/MMbtu that session on the New York Mercantile Exchange.

The withdrawal was less than expected by Wall Street analysts and left storage in excess of 3.4 tcf. "US natural gas withdrawal rates look modest so far, but the key period for withdrawals is yet to come," said analysts at Barclays Capital Inc., London.

Meanwhile, large withdrawals of gas from storage due to an abnormally cold spell during the same period in 2005 "may lead to a possible increase in the year-over-year natural gas storage surplus over the next few weeks," said J. Marshall Adkins in the Houston office of Raymond James & Associates Inc. "Despite this small hiccup, we still believe we will be an average of approximately 5 bcfd tighter throughout the withdrawal season."

That's based on Raymond James's estimates that gas supplies will be tighter by 250 MMcfd this season, while demand will be higher by 4.5 bcfd due to "the combined effect of a 1.75% year-over-year increase" in industrial demand. "Finally, we are forecasting a normal winter (as it relates to weather), which should translate into running about 2 bcfd tighter for the duration of the winter season. Based on these assumptions, we believe that the natural gas overhang experienced throughout the injection season will dissipate and winter storage levels should be in the range of 1.2-1.3 tcf, more in line with historical averages," Adkins said. As a result, he said, "We remain comfortable with our 2007 gas price forecast of $10[/MMbtu]."

OPEC production
After falling for three sessions, the January contract for benchmark US light, sweet crudes increased 30¢ to $62.49/bbl Dec. 7 on NYMEX when tanker-tracer Oil Movements reported the Organization of Petroleum Exporting Countries apparently had reduced production by 800,000 b/d.

That was still short of the 1.2 million b/d cut that OPEC members agreed to in October, effective Nov. 1, but up from the 550,000 b/d reduction previously estimated. By Dec. 8, the price was down again, to $62.03/bbl.

Some observers expected crude prices to escalate on a "risk premium" preceding the Dec. 14 OPEC meeting in Nigeria, "as well as the increased risk that Nigerian rebels use the occasion to embarrass the hosting government," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. Meanwhile, a second production cut proposed by some OPEC members was already being priced in, he said. Any additional cut would "need to be higher than 500,000 b/d to be a surprise," Jakob said.

Raymond James analysts in Houston said, "OPEC seems determined to defend and maintain oil prices above $60/bbl."

In a Dec. 6 report, Barclays Capital's Paul Horsnell said: "OPEC's next decision has been complicated because of exchange rate effects and because all the tightening to date has happened in oil products. We would not expect ministers to want to lessen the pressure on the supply side of the crude oil market. The overhang in US oil product inventories above their 5-year average has now completely disappeared."

Import outlook
EIA expects US imports of energy to grow moderately as a share of total demand during the next 25 years as rising prices spur domestic production of crude and reduce demand growth. It projects imports will rise to 32% of total US energy consumption in 2030 from 30% in 2005.

US demand for liquid fuels and other petroleum products is expected to escalate to 26.9 million b/d in 2030 from 20.7 million b/d in 2005, while domestic liquids production is projected to increase to 10.5 million b/d from 8.3 million b/d through expansion and improvement in refining capacity. EIA predicts US crude production will increase to 5.9 million b/d in 2017 from 5.2 million b/d in 2005, with output expected to decline after 2017 to 5.4 million b/d in 2030. The additional US oil is expected to be produced primarily from the deep waters of the Gulf of Mexico, said EIA officials.

US imports of natural gas are projected to grow to 26 tcf/year by 2030 from 22 tcf/year in 2005, with increased LNG imports compensating for an expected decline in Canadian supplies. Because of permitting problems, a new pipeline to transport Alaskan gas to the Lower 48 likely will not come on line before 2018, almost 3 years later than previously expected, said EIA officials.

(Online Dec. 11, 2006; author's e-mail: samf@ogjonline.com)


Related Articles

Uganda taps Russian firm to build country’s first refinery

02/17/2015 The government of Uganda has selected a consortium led by Russia’s RT Global Resources, Moscow, as its first choice to construct the country’s firs...

Indian state, Kuwaiti firm sign deal for refinery, petchem complex

02/16/2015 The government of India’s Andhra Pradesh state has entered an agreement with Al Qebla Al Watya Inc., a subsidiary of Mohammed Abdulmohsin Al-Kharaf...

Lukoil lets contract for Uzbekistan gas processing plant

02/13/2015 Russia’s OAO Lukoil has let a contract to a consortium headed by South Korea’s Hyundai Engineering Co. Ltd., Seoul, for the construction of its lon...

Mangalore refinery reports steady operations following expansion

02/13/2015 Operations are proceeding smoothly at Mangalore Refinery & Petrochemicals Ltd.’s (MRPL) refinery in Mangalore, India, following the recent comp...

Omsk refinery hits target for Euro 5 diesel output

02/12/2015 JSC Gazprom Neft has switched to the exclusive production of Euro 5-standard diesel fuels at its 21.4 million-tonne/year Omsk refinery in Western S...

Contract let for Louisiana methanol complex

02/11/2015 Yuhuang Chemical Inc., a subsidiary of Shandong Yuhuang Chemical Co. Ltd., has let a contract to Air Liquide SA, Paris, to supply oxygen for its $1...

New study finds wide variations in gathering systems’ methane samples

02/11/2015 Samples of methane emissions from 114 natural gas gathering stations and 16 processing plants across 13 states found wide variations in amounts act...

Williams commissions, wraps Geismar olefins plant expansion

02/10/2015 Williams Partners LP, Tulsa, has now commissioned and started production of ethylene for sale from its newly rebuilt and expanded Geismar, La., ole...

MRPL increases ownership in aromatics complex

02/10/2015 Mangalore Refinery & Petrochemicals Ltd. (MRPL), a subsidiary of Oil & Natural Gas Corp. Ltd. (ONGC), has increased its ownership interest ...
White Papers

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

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...
Available Webcasts


Prevention, Detection and Mitigation of pipeline leaks in the modern world

When Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST



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


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