Natural Gas Report: Export Constraints & NGLs Pressure Spot Pricing

June 21, 2013 03:51 AM

A pipeline explosion Tuesday morning on Florida Gas Transmission's (FGT) system is expected to have little effect on prices. The explosion occurred in Washington Parish, Louisiana, and no injuries were reported. While prices at the FGT Zone 3 trading point have risen $0.17 per MMBtu since Monday, these increases are more or less consistent with other prices in the region. Various trade press sources have noted that the availability of spare capacity on pipelines in the region will offset the impact of the explosion.

The United States later this summer will add close to 10% to its natural gas export capacity to Mexico following the June 14 approval of a 0.37 billion cubic feet per day (Bcf/d) pipeline that crosses the border at a point in far western Texas. Norte Crossing is one of several natural gas pipeline export projects planned through the end of 2014, which together could add up to 3.3 Bcf/d of additional export capacity to Mexico—almost doubling the 2012 U.S. export capacity to Mexico.

Mexico has increasingly relied on pipeline gas imported from the United States because its natural gas consumption has risen faster than production.

Futures Pricing --

Front month natural gas opened today at $3.87 after topping earlier this week at $3.98.

Positive storage news coupled with weak demand allowed the contract to remain within range of trader's targets. Expect July natural gas to continue to pivot around $3.91.

Spot Prices --

Natural gas spot prices firmed this week according to EIA. The Henry Hub spot price closed Wednesday at $3.93 per million British thermal unit (MMBtu), up 19 cents from $3.74 the previous week.

Both short-term issues like end-user maintenance and long-term fundamental issues led to substantial declines in NGL prices. Williams Company shut down its olefins facility in Geismar, Louisiana, for unplanned maintenance Thursday following an explosion; additionally, CP Chemicals Group's Port Arthur, Texas, ethylene cracker is offline for planned maintenance. These events put downward pressure on ethane and butane prices. In addition to short-term maintenance outages, longer term fundamentals have also put downward pressure on prices, particularly on butane.

Increases in supply, export constraints, and declines in gasoline demand (butane is used as a blending agent) have all led to price declines.

Consumption --

Consumption increased 0.9% during the week. A 5.6% increase in power consumption was partially offset by decreases in industrial, residential, and commercial use.

Power burn increased in most areas of the country. In the Southeast (the largest consumer of natural gas for power generation), consumption of natural gas for power generation increased 11.8%.

Storage --

Working natural gas in storage increased to 2,438 Bcf as of Friday, June 14, according to EIA'sWNGSR.

The 91 Bcf gain in storage levels was higher than both the 5-year average and year-ago stock changes for the week, which had net injections of 80 Bcf and 63 Bcf, respectively. Despite the large build, current inventories remain 559 Bcf (18.7%) less than last year at this time and 47 Bcf (1.9%) below the 5-year average of 2,485 Bcf.

The net injection was larger than the market expectations, which, on average, were reported to be 90 Bcf.

Warm temperatures during the storage report week supported this week's net injection. Temperatures in the Lower 48 states were 1.6 degrees warmer than the 30-year normal temperature and 0.9 degrees warmer than the same period last year, and averaged 71.0 degrees for the week, compared to 70.1 degrees last year and the 30-year normal of 69.4 degrees.


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