September 1 CERI Commodity Report Natural Gas Natural Gas Prices Paul Kralovic The Commodity Report Natural Gas article, Turm-oil in the Natural Gas Markets, released in February 1, explored the low natural gas price environment at the end of 15 and beginning of 1. On December 3, 15 the daily spot price at Henry Hub dropped to US$1.3 per MMBtu, its lowest point since December 11, 199. 1 And while prices fluctuated in the early part of 1, increasing to a high of US$.5 per MMBtu on January 11, 1, the price of natural gas plummeted once again, reaching a 1 low of US$1.9 per MMBtu on March, 1. 3 A great deal, however, has happened since, with prices rebounding steadily. The Henry Hub daily spot price reached US$3.1 per MMBtu on October 17, 1. This is the highest daily price point since natural gas reached US$3.7 per MMBtu on March 5, 15. 5 Figure 1 illustrates the monthly average Henry Hub price of natural gas from September 1 to present. The monthly average price at Henry Hub in December 15 was US$1.93 per MMBtu, the lowest since March 1999. As of September 1 the monthly average Henry Hub price is US$.99 per MMBtu, the highest since December 1, when the price was US$3. per MMBtu. Figure 1: Henry Hub Natural Gas Spot Prices (US$ per MMBtu) Source: EIA 7 Figure illustrates various monthly bid-week spot natural gas prices for October 1. Market centers illustrated include Henry Hub, AECO-C (Alberta), PG&E Malin, Chicago Citygate, Dawn (Ontario), Texas East M-3, SoCal Gas Citygate, CIG Rockies, El Paso San Juan and Leidy Hub. While Henry Hub is the benchmark price North American natural gas, the higher price of natural gas is mirrored in major trading points across the US and Canada. With the exception of the Leidy Hub (Pennsylvania) and Texas Eastern M-3 (New York), natural gas prices in the remaining market centers are up from January 1. The natural gas prices in these two trading points generally trade lower than the Henry Hub price in Louisiana. Production from the prolific Marcellus Shale and the growing underlying Utica Shale, located in Pennsylvania, West Virginia and Ohio, often results in oversupply in the region, highlighting the region s lack of pipeline infrastructure, connecting production to the nation s largest consuming markets along the US East Coast. CERI Commodity Report Natural Gas Editorial Committee: Paul Kralovic, Dinara Millington, Megan Murphy, Allan Fogwill About CERI The Canadian Energy Research Institute is an independent, not-for-profit research establishment created through a partnership of industry, academia, and government in 1975. Our mission is to provide relevant, independent, objective economic research in energy and related environmental issues. For more information about CERI, please visit our website at www.ceri.ca or contact us at info@ceri.ca.
Page Figure : Natural Gas Spot Prices in Various Trading Points (US$ per MMBtu 9 ) Source: Platt s Gas Daily Price Guide, 1 CERI & Yellow Maps 11 Why are Natural Gas Prices Rebounding? From the supply-side perspective, major factors affecting prices include the amount of natural gas produced, as well as the amount of natural gas in storage. According to the EIA, US working natural gas totaled about,5 Bcf as of the week ending February 19, 1, 17 approximately 577 Bcf above the five-year average of,7 Bcf and 15 Bcf above last year s total of 1,99 Bcf for the same period. 1 This is 31. percent higher than the same time a year ago and.7 percent higher than the 5-year average. 19 Combined with a decrease in US marketed gas production, storage injections this past summer were weaker-than-expected. According to the EIA, US working natural gas totaled about 3, Bcf as of the week ending September 3, 1, approximately 3 Bcf above the five-year average and 7 Bcf above last year s total for the same period. 1 The current natural gas storage levels in the Lower- are converging with the 5- year average and 15 levels, illustrated in Figure 3. Figure 3: US Lower- Working Natural Gas Storage The US Energy Information Administration (EIA) expects marketable natural gas production to average 77.5 billion cubic feet per day (Bcfpd) in 1 the first annual production decline, albeit slight, since 5. 1 In September 1, total US production averaged 7.5 Bcfpd, down from an all-time high of 79.7 Bcfpd in September 15. 13 US marketed production has decreased seven months consecutively since February s total of 79. Bcfpd. The decline in US total marketable gas production is caused by a decline in the US shale gas production, decreasing from a record-high of Bcfpd in February 1 to. Bcfpd in September 1. 1 As of September 1, the Marcellus Shale and the Utica Shale produced 1.7 Bcfpd and 3.7 Bcfpd, respectively. This is down from record-high production levels of 17.1 Bcfpd and 3. Bcfpd in February 1. 15 However, between the two shale plays, they account for approximately percent of the total shale gas production in the US. 1 A similar production decline between February and September is present for all major shale plays in the US, including the Bakken Shale, Woodford, Barnett Shale, Eagle Ford and the Haynesville Shale. Working gas storage levels in the US are at near record levels. Following a mild winter in 15/1 and lowerthan-expected demand, combined with record natural gas production, inventories reached record-levels. Source: EIA & CERI From the demand-side, the main factor is variations in winter and summer weather. Warmer weather is creating a downward pressure in natural gas prices, at least in the short term, delaying the beginning of the winter heating season. As of the week ending October 13, 1, there have been 3 heating degree days (HDDs) 3 in the US, down 3 HDDs from the norm. Most of the US is experiencing warmer-than-average temperatures. For example, New England, East North Central, and the Middle Atlantic regions have been warmer-than-expected, down 53 HDDs, 3 HDDs and 9 HDDs, respectively, from the norm. 5 For the week ending October 19, 1, US consumption is down from. Bcfpd last mid-october 15 to 5.5 Bcfpd in mid-october 1. While residential/
Page 3 commercial consumption is down year-over-year from 1.9 Bcfpd to 11. Bcfpd, power generation is up slightly over the last year, up from 5. Bcfpd to 5. Bcfpd. 7 Power generation, however, is increasingly relying on natural gas, increasing from an annual average of.3 Bcfpd in 1 to an expected annual average of.1 Bcfpd in 1. Natural gas plants are quickly replacing coal-fired power plants in the US. The EIA expects Henry Hub spot price to average US$3.1 per MMBtu in 17. 9 Closer to Home AECO-C natural gas prices are above the US$. per MMBtu level, higher than the US$1.5 per MMBtu annual average thus far in 1. This is a significant change after the AECO-C price dropped below the US$1. per MMBtu level in March and April this year, narrowing slightly the differential between Henry Hub and AECO-C since. Figure illustrates the differential between the two trading points. The differential as of September 1 is positive at US$. per MMBtu, down from US$1. in August 1 and lower than the average differential between March and September of US$.97 per MMBtu. The relationship is commonly positive, with AECO-C prices trading at lower prices than the Henry Hub. Figure : Henry Hub/AECO-C Beginning of Next Month Spot Price and Differential ($US/MMBtu) to conditions, improves access of western Canadian natural gas to US markets, as well as providing additional capacity to the oil sands area in northern Alberta. 33 In an interesting effort to better access markets in central Canada and compete with low-cost natural gas from the Marcellus and Utica, TransCanada released an open season proposing a new toll structure for western Canadian producers to ship gas eastward on its Mainline. 3 The Calgary-based company announced in mid-october that it would like to reduce its pipeline tolls to transport natural gas from Empress, Alberta to Dawn, Ontario. Another significant storyline to follow are Canadian working natural gas storage levels. While storage injections were tempered this past summer in the US, the same is not true north of the border. As of end- September 1, storage levels in Canada are at 79 Bcf, 137 Bcf higher than the 5-year average and 1 Bcf higher than the same time last year. Storage levels in western Canada are at 93 percent capacity while storage capacity in eastern Canada are at 1 percent capacity, as of September 3. As of week ending October 7, 1, storage capacity in eastern Canada reached 11. percent. 35 Following withdrawals in the past couple of weeks, it appears, however, that winter heating demand may start a bit earlier than expected in Canada. Figure 5: Canadian Working Natural Gas Storage (Bcf, Month-end) Source: CERI 3 & Platt s Gas Daily Price Guide 31 Source: Platt s Gas Daily & CERI The narrowing spread between the Henry Hub and the AECO-C may also be attributed in part to the National Energy Board (NEB) recommending that the federal government approve the 17 NOVA Gas Transmission (NGTL) System Expansion Project. 3 The project, subject
Page Endnotes 1 US Energy Information Administration, Natural Gas, Henry Hub Natural Gas Spot Price, Daily, https://www.eia.gov/dnav/ ng/hist/rngwhhdd.htm ibid 3 InvestmentMine, Historical Natural Gas Prices and Price Chart, http://www.infomine.com/investment/metal-prices/naturalgas/all/ US Energy Information Administration, Natural Gas, Henry Hub Natural Gas Spot Price, Daily, http://www.eia.gov/dnav/ ng/hist/rngwhhdd.htm 5 ibid US Energy Information Administration, Natural Gas, Henry Hub Natural Gas Spot Price, Monthly, http://www.eia.gov/ dnav/ng/hist/rngwhhdm.htm 7 ibid Monthly Bid-week Spot Gas Prices, October 1 (US$ per MMBtu) 9 It is important to note that all prices are in US$ per MMBtu, with the exception of AECO-C, quoted in C$ per GJ; for the purpose of this figure, AECO-C is converted. 1 Platt s Gas Daily Price Guide, October 1 11 Yellow Maps, United States map, http:// www.yellowmaps.com/map/united-states-blank-map-57.htm 1 ibid 13 US Energy Information Administration, Short-Term Energy and Winter Fuels Outlook, October 13, 1, https:// www.eia.gov/forecasts/steo/report/natgas.cfm 1 US Energy Information Administration, Natural Gas, Natural Gas Weekly Update (for week ending October, 1), http://www.eia.gov/naturalgas/weekly/#tabs-supply-1 15 ibid 1 ibid 17 US Energy Information Administration, Weekly Working Gas in Underground Storage (for week ending February 19, 1), http://www.eia.gov/dnav/ng/ng_stor_wkly_s1_w.htm 1 ibid 19 US Energy Information Administration, Weekly Natural Gas Storage Report (for week ending February 19, 1), http:// ir.eia.gov/ngs/ngs.html US Energy Information Administration, Weekly Working Gas in Underground Storage (for week ending February 19, 1), http://www.eia.gov/dnav/ng/ng_stor_wkly_s1_w.htm 1 ibid US Energy Information Administration, Natural Gas, Natural Gas Weekly Update (for week ending February 17, 1), http://www.eia.gov/naturalgas/weekly/#tabs-storage-1 3 Heating Degree Days are a measure of how cold a location is, the daily average temperature falls below 5 F (1.3 C). US Energy Information Administration, Natural Gas, Natural Gas Weekly Update (for week ending October, 1), http://www.eia.gov/naturalgas/weekly/#tabs-rigs-1 5 ibid US Energy Information Administration, Natural Gas Weekly Update, for week ending October 19, 1, http:// www.eia.gov/naturalgas/weekly/#tabs-supply- 7 ibid US Energy Information Administration, Short-term Energy and Winter Fuels Outlook, October 13, 1, https:// www.eia.gov/forecasts/steo/report/natgas.cfm 9 ibid 3 Differentials calculated by CERI, Presented on CERI s monthly Natural Gas Commodity Report 31 Platt s website, Gas Daily Price Guide (January Present) (Accessed on February 15, 1) 3 National Energy Board website, 17 NGTL System Expansion Project, June1, 1, http://www.neb-one.gc.ca/pplctnflng/ mjrpp/17nvgsxpnsn/index-eng.html 33 ibid 3 The Globe and Mail website, TransCanada offers Alberta gas shippers lower price along Canadian Mainline, October 13, 1, http://www.theglobeandmail.com/report-on-business/ industry-news/energy-and-resources/transcanada-offersalberta-gas-shippers-lower-price-along-canadian-mainline/ article3373/ 35 Platt s Gas Daily, October 1, 1.
Jul- Jan- Differential Jul-9 Jan-11 Henry Hub Jan-1 AECO-C Jul- Jan- Differential Jul-9 Jan-11 Henry Hub Jul-1 Jan-1 Rockies Beginning of Next Month Spot Price (US$/MMBtu) SOURCE: CERI, Platts Gas Daily Price Guide. -1 Jan-5 1 3 5 7 9 11 13 15 Jul-1 Henry Hub/Rockies SOURCE: CERI, Platts Gas Daily Price Guide. - Jan-5 1 1 1 Henry Hub/AECO-C Beginning of Next Month Spot Price (US$/MMBtu) Jul-15 Jul-15 Jul- Jan- Differential Jul-9 Jan-11 Henry Hub Jan-1 Jul- Jan- Differential Jul-9 Jan-11 Henry Hub Jul-1 Jul-15 Jan-1 Jul-15 Southern California Beginning of Next Month Spot Price (US$/MMBtu) SOURCE: CERI, Platts Gas Daily Price Guide. Jan-5-1 1 3 5 7 9 11 13 15 Jul-1 Chicago Henry Hub/Southern California Chart Title SOURCE: CERI, Platts Gas Daily Price Guide. -7 Jan-5-5 -3-1 1 3 5 7 9 11 13 15 Henry Hub/Chicago Beginning of Next Month Spot Price (US$/MMBtu) Page 5
SOURCE: Canadian Gas Association. SOURCE: CERI, Canadian Gas Association, Statistics Canada. Page 7 5 3 1 9 7 5 3 1 Canadian Heating Degree Days 5-Year Avg. 15 1 US Heating Degree Days 5-Year Avg. 15 1 SOURCE: NOAA. SOURCE: CERI, NOAA, EIA. Canadian Heating Degree Days vs Residential and Commercial Consumption Degree Days BCFPD 1, 7 Degree Days Consumption 1, 5 3 1 Jan-9 Jan-1 Jan-11 Jan-1 Jan-13 Jan-1 Jan-15 Jan-1 US Heating Degree Days vs Residential and Commercial Consumption Degree Days BCFP 1, Degree Days Consumption 1, 5 3 1 Jan-9 Jan-1 Jan-11 Jan-1 Jan-13 Jan-1 Jan-15 Jan-1 CERI Commodity Report - Natural Gas
SOURCE: NOAA. SOURCE: Environment Canada. SOURCE: NOAA. SOURCE: Environment Canada. Page 7
CERI Commodity Report - Natural Gas SOURCE: Environment Canada. SOURCE: NOAA. SOURCE: NOAA. Page
NOTE: As of January 1, StatsCan changed the content and methodology of Canadian natural gas consumption. Users should use caution comparing current data with historical data SOURCE: Statistics Canada. SOURCE: Statistics Canada, NEB. SOURCE: EIA. SOURCE: EIA. Page 9 Canadian Consumption By Sector (Bcfpd) 1 1 Industrial & Power Commercial Residential 1 1 Jan-9 Jan-1 Jan-11 Jan-1 Jan-13 Jan-1 Jan-15 Jan-1 US Consumption By Sector (Bcfpd) 1 Industrial Electric Power Commercial Residential 1 1 Jan-9 Jan-1 Jan-11 Jan-1 Jan-13 Jan-1 Jan-15 Jan-1 Canadian Marketable Production By Province/Region (Bcfpd) BC, Yukon, NWT AB SK E. Coast 1 1 1 1 1 Jan-9 Jan-1 Jan-11 Jan-1 Jan-13 Jan-1 Jan-15 Jan-1 US Marketable Production (Bcfpd) 9 US Total Louisiana GOM Federal Waters Texas 7 5 3 1 Jan-9 Jan-1 Jan-11 Jan-1 Jan-13 Jan-1 Jan-15 Jan-1
Page 1 BC, Yukon, NWT Marketable Production (Bcfpd) 5. 1 15 1. 3.. 1.. Saskatchewan Marketable Production (Bcfpd) 1. 1 15 1.5. 1 1 1 1.5.5. Alberta Marketable Production (Bcfpd) 1 15 1 East Coast Marketable Production (Bcfpd) 1 15 1 SOURCE: Statistics Canada, NEB. SOURCE: Statistics Canada, NEB. SOURCE: Statistics Canada, NEB. SOURCE: Statistics Canada, NEB. CERI Commodity Report - Natural Gas
Page 11 1 1 1 1 9 7 5 3 1 System Field Receipts TransCanada + Westcoast; Monthly Average (Bcfpd) 1 15 1 Canadian Gas Exports to the US By Export Point - West (Bcfpd) Kingsgate Monchy Elmore Huntingdon Aug-15 Oct-15 Dec-15 Feb-1 Apr-1 Jun-1 Aug-1 1 1 1 Alberta System Deliveries (Bcfpd) Empress McNeill AB-BC Alliance Sep-15 Nov-15 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Canadian Gas Exports to the US By Export Point - East (Bcfpd) Emerson Iroquois Others Niagara 3 1 Aug-15 Oct-15 Dec-15 Feb-1 Apr-1 Jun-1 Aug-1 SOURCE: CERI, TCPL, Westcoast Energy. SOURCE: NEB. SOURCE: NEB. Note: Alliance deliveries were not available between Dec. 1/15 and Jan. 1/1. SOURCE: CERI, TCPL, Alliance Pipeline.
SOURCE: NEB. SOURCE: NEB. SOURCE: NEB, EIA. SOURCE: NEB. Page 1 US Imports of Canadian Gas By US Region (Bcfpd) 1 West Midwest East 1 Aug-15 Oct-15 Dec-15 Feb-1 Apr-1 Jun-1 Aug-1 Total US Pipeline Gas Imports (Bcfpd) 1 Canada Mexico 1 Jul-15 Sep-15 Nov-15 Jan-1 Mar-1 May-1 Jul-1 3 1 Average Canadian Export Price By US Region (C$/GJ) West Midwest East Aug-15 Oct-15 Dec-15 Feb-1 Apr-1 Jun-1 Aug-1 Canadian Gas Imports By Import Point (Bcfpd) Courtright Sarnia St. Clair Other Aug-15 Oct-15 Dec-15 Feb-1 Apr-1 Jun-1 Aug-1 CERI Commodity Report - Natural Gas
Page 13 Eastern US LNG Imports By Facility (Bcf) US GoM LNG Imports By Facility (Bcf) 1 Cove Point Elba Island Everett NE Gateway Neptune Freeport Lake Charles Sabine Pass Cameron Golden Pass Gulf LNG 1 1 1 Aug-1 Nov-1 Feb-15 May-15 Aug-15 Nov-15 Feb-1 May-1 Aug-1 Aug-1 Nov-1 Feb-15 May-15 Aug-15 Nov-15 Feb-1 May-1 Aug-1 SOURCE: US. DOE. SOURCE: US DOE. US LNG Imports By Origin (Bcf) Volume-Weighted Average LNG Price (US$/MMBtu) 1 1 15 1 Nigeria Trinidad Norway Yemen 1 15 1 1 1 1 5 Aug-1 Nov-1 Feb-15 May-15 Aug-15 Nov-15 Feb-1 May-1 Aug-1 SOURCE: US DOE. Note: There were no LNG imports for the month of November 1. SOURCE: US DOE.
Page 1 SOURCE: US DOE, NEB. SOURCE: US DOE. Chart Title US LNG Exports by Destination (Bcf) US LNG Re-Exports By Destination (Bcf) 5 15 Mexico Dominican Rep. China Jordan Spain Chile Kuwait Argentina 7 Turkey Brazil Egypt India Argentina 5 1 Portugal 3 UAE India 5 Brazil Taiwan Japan Aug-1 Nov-1 Feb-15 May-15 Aug-15 Nov-15 Feb-1 May-1 Aug-1 1 Aug-1 Nov-1 Feb-15 May-15 Aug-15 Nov-15 Feb-1 May-1 Aug-1 SOURCE: EIA, US DOE. SOURCE: US DOE. CERI Commodity Report - Natural Gas
Page 15 North American Active Rigs Canadian Rig Fleet Utilization Weekly Average Active Rigs 3,,5 US WCSB 1, 9 Active Rigs Total Rig Drilling Fleet, 1,5 7 5 1, 3 5 1 Jan- Jul-7 Jan-9 Jul-1 Jan-1 Jul-13 Jan-15 Jul-1 Jan- Jul-7 Jan-9 Jul-1 Jan-1 Jul-13 Jan-15 Jul-1 SOURCE: CERI, CAODC, Baker Hughes. SOURCE: CERI, CAODC. WCSB Active Rigs by Province Weekly Average Western Canada Active Rigs Weekly Average 7 SK AB BC 7 5-Year Avg. 15 1 5 5 3 3 1 Jan-9 Jan-1 Jan-11 Jan-1 Jan-13 Jan-1 Jan-15 Jan-1 1-1 5 9 13 17 1 5 9 33 37 1 5 9 Week Number SOURCE: CERI, CAODC. SOURCE: CERI, CAODC.
Page 1 US Total Oil- and Gas-directed Active Rigs US Total Active Rigs,, Oil-directed Gas-directed Gas-directed %, 1, 1, 1, 1, 1, Jan- Jul-7 Jan-9 Jul-1 Jan-1 Jul-13 Jan-15 Jul-1 1% 9% % 7% % 5% % 3% % 1% %,5 Total Oil-directed GoM Gas-directed Onshore Gas-directed, 1,5 1, 5 Jan- Jul-7 Jan-9 Jul-1 Jan-1 Jul-13 Jan-15 Jul-1 SOURCE: CERI, Baker Hughes. SOURCE: CERI, Baker Hughes. US Gulf of Mexico Active Rigs 1 Oil-directed Gas-directed 1 Jan- Jul-7 Jan-9 Jul-1 Jan-1 Jul-13 Jan-15 Jul-1 SOURCE: CERI, Baker Hughes. CERI Commodity Report - Natural Gas
Page 17 1, 9 7 5 3 1 5,,5, 3,5 3,,5, 1,5 1, 5 Canadian Working Gas Storage 5-Year Avg. 15 1 US Lower- Working Gas Storage 5-Year Avg. 15 1 Canadian Storage by Region 9 West East 7 5 3 1 Sep-15 Nov-15 Jan-1 Mar-1 May-1 Jul-1 Sep-1 US Storage by Region,5 East Midwest Mountain Pacific South Central, 3,5 3,,5, 1,5 1, 5 Sep-15 Nov-15 Jan-1 Mar-1 May-1 Jul-1 Sep-1 SOURCE: CERI, Platt s Gas Daily. SOURCE: CERI, Platt s Gas Daily. SOURCE: CERI, Platt s Gas Daily. SOURCE: CERI, Platt s Gas Daily.
Page 1 WC_IJ_WD Western Canadian Storage Injections/Withdrawals 1 5-Year Avg. 15 1 - - -1-1 Canadian Storage Injections/Withdrawals 15 5-Year Avg. 15 1 1 5-5 -1-15 - Eastern Canadian Storage Injections/Withdrawals 5-Year Avg. 15 1 - - - - -1 SOURCE: CERI, Platt s Gas Daily. SOURCE: CERI, Platt s Gas Daily. SOURCE: CERI, Platt s Gas Daily. CERI Commodity Report - Natural Gas
Page 19 15 1 5-5 -1-15 - -5 3 1-1 - -3 - US East Storage Injections/Withdrawals 5-Year Avg. 15 1 US Mountain Region Storage Injections/Withdrawals 5-Year Avg. 15 1 US Midwest Region Storage Injections/Withdrawals 3 5-Year Avg. 15 1 1-1 - -3 US Pacific Region Storage Injections/Withdrawals 5-Year Avg. 15 1 - - - - SOURCE: CERI, EIA. SOURCE: CERI, EIA. SOURCE: CERI, EIA. SOURCE: CERI, EIA.
Page 3 1-1 - -3 US South Central Region Storage Injections/Withdrawals 5-Year Avg. 15 1 - - - - -1 US Storage Injections/Withdrawals 5-Year Avg. 15 1 SOURCE: CERI, EIA. SOURCE: CERI, EIA. CERI Commodity Report - Natural Gas