MARKET WATCHHot weather drives up natural gas prices
Sam Fletcher
Senior Writer
HOUSTON, July 21 -- Natural gas futures prices escalated July 20 for the second consecutive session on the New York market as traders scrambled to cover excess open sales positions after the US Energy Information Administration reported a smaller-than-expected increase in US gas storage.
EIA reported the injection of 59 bcf of gas into US underground storage during the week ended July 14. That was down from 89 bcf the previous week but up from a revised injection figure of 53 bcf during the same period last year. US storage now stands at almost 2.8 tcf, up by 427 bcf from year-ago levels and 562 bcf above the 5-year average.
The smaller-than-expected injection was the result of the first major heat wave of the summer in the US. "Overall, conditions across the US were 17.8% warmer than normal and 2.4% warmer than last year. Season-to-date, national cooling degree-day temperatures are averaging 15.1% warmer than normal and 1.4% warmer than last year," said Ronald J. Barone, UBS Securities LLC managing director of gas and electric utilities, New York.
Other major factors included a 9.6% increase in electric output to 89,508 Gw and a 14% decrease in average daily nuclear outages to 1,723 Mw. Based on current storage figures, Barone said, "The industry will only require an injection pace of 6.39 bcfd to get supplies to a very solid comfort level of 3.4 tcf by Nov. 1. We view this as bearish when compared with the 8.1 bcfd actual injection rate last year and the 9.3 bcfd 5-year average."
However, gas consumption in summer months has increased in recent years due to new gas-fueled generation capacity, while US gas production capacity has decreased. "Moreover, fuel-switching power generation facilities will burn natural gas this summer as (unlike the past few summers) it is substantially less expensive than No. 2 or No. 6 oil," Barone said.
August crude prices also rose slightly July 20 with reports of production problems at two major US refineries. Valero Energy Corp. shut down for repairs its fluid catalytic cracking unit at its St. Charles refinery on the Mississippi River in Louisiana (OGJ Online, July 20, 2006). Company officials said they expect to take 20 days to make those repairs, which means the loss of 65,000 b/d in gasoline production. A power outage caused by severe storms shut down ConocoPhillips's 360,000 b/d Wood River refinery in Roxana, Ill.
Meanwhile, Lyondell Chemical Co. and its partner, Citgo Petroleum Corp., have decided not to sell to a third party their Lyondell-Citgo Refining LP partnership that operates a refinery in Houston. "While significant interest was expressed in the refinery and offers exceeded $5 billion, Lyondell has determined that these offers were insufficient to overcome the significant benefit of retaining an ownership position in the 268,000 b/d refinery," officials said. They will continue to evaluate alternatives including Lyondell's acquisition of Citgo's position or continuation of the joint venture.
Energy prices
The August gas contract jumped by 22.9¢ to $6.09/MMbtu July 20 on the New York Mercantile Exchange. However, cooler weather may soon produce below-normal temperatures in the upper half of the US and in the Midwest.
The August contract for benchmark US light, sweet crudes regained 42¢ to $73.08/bbl after trading as low as $72.05/bbl during the July 20 session on NYMEX. The September contract lost 50¢ to $74.27/bbl. On the US spot market, West Texas Intermediate in Cushing, Okla., was up by 42¢ to $73.09/bbl. Regular gasoline for August delivery increased by 1.79¢ to $2.25/gal, but heating oil for the same month fell by 3.11¢ to $1.93/gal on NYMEX.
In London, the September IPE contract for North Sea Brent crude dipped by 18¢ to $73.72/bbl. Gas oil for August increased by $3.25 to $625.25/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes slipped by 1¢ to $68.45/bbl on July 20.
Contact Sam Fletcher at [email protected].