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Posts tagged “natural gas prices”

By Robert Rapier on Aug 13, 2014 with 24 responses

Why Natural Gas Prices Collapsed

Over the course of the next two columns, I plan to finish up the recent look at BP’s Statistical Review of World Energy 2014. The final two columns will focus on renewable energy, and carbon dioxide emissions.

Today I want to provide an update on the natural gas picture, as prices declined sharply at the end of July. I have laid out the argument since last winter that because of the deep inventory hole that developed over the course of the exceptionally cold winter, natural gas prices would remain high relative to last year, and that as a result natural gas producers would likely report higher year-over-year profits. (For background on the inventory picture, see my February column Natural Gas Inventories are Headed Toward Zero). CONTINUE»

By Robert Rapier on Mar 13, 2014 with 7 responses

Gas Inventories Reach 11-Year Low

Natural Gas Update

Two weeks ago I wrote about the abnormal situation with natural gas inventories in Natural Gas Inventories are Headed Toward Zero. I got a number of questions and comments about that essay, and since then we now have another two weeks of inventory data, let’s update the picture.

First, I want to deal with some misconceptions that a few people had. I don’t think we are going to run completely out of natural gas in storage. My point was that this winter marked the sharpest decline trajectory and we have made the largest ever withdrawals from storage in history, and barring a sudden warm spell we are going to go into injection season with very low natural gas inventories.

This has implications. Why? Because historically a significant deviation of inventories from normal will have a lingering impact on natural gas prices. CONTINUE»

By Robert Rapier on Feb 26, 2014 with 30 responses

Natural Gas Inventories are Headed Toward Zero

This winter has been one of the coldest on record. It’s been the coldest winter in at least 30 years, and I saw a report today that there is a chance that this will be Chicago’s coldest winter on record. Presently it is the 3rd coldest on record for Chicago, but another blast of cold air is just moving into the Midwest and East Coast.

Natural gas is a major energy source for heating homes, and prices have been spiking periodically in recent weeks as the weekly draws on natural gas inventories are higher than normal. Natural gas consumption in the US is highly seasonal, so producers use a system of underground pressurized storage that builds inventories until mid-fall, which are then depleted through the winter. Natural gas can be stored in depleted oil or gas reservoirs, in natural aquifers, or in salt caverns.

The US has nearly 9 trillion cubic feet (tcf) of natural gas storage capacity, but only a fraction of that has ever been used. According to the Energy Information Administration (EIA), the actual amount in storage has never exceeded 4 tcf. Inventories will usually build to between 3 and 4 tcf by ~ November 1st each year, before being pulled down to under 2 tcf by the end of winter. So a typical winter season will see just over 2 tcf pulled out of storage — an amount equivalent to about 10 percent of annual US natural gas production. CONTINUE»

By Robert Rapier on Jan 15, 2014 with 10 responses

Grading My 2013 Energy Predictions

Normally I would have had this out two weeks ago, but the 60 Minutes story has thrown me behind schedule. I continue to get lots of comments and questions about Vinod Khosla and now his righteous indignation over how the 60 Minutes story was portrayed (especially since that was the only part of my interview they aired), so I may follow up in a week or so to explain (once more) the precise nature of my criticism — as well as what it isn’t. To be honest, I am tired of writing about it, and I am sure that regular readers are tired of reading about it, but new readers continue to ask questions that indicate they misunderstand the nature of my criticism.

In the meantime, here is my report card for my predictions from last year. In the next article, I will give my predictions for 2014.

In January 2013, I made the following five predictions for 2013:

  1. Brent and WTI crude prices will both average less in 2013 than in 2012.
  2. The Brent-WTI price differential — which has widened substantially in the past two years — will narrow in 2013.
  3. The average annual price of natural gas — as measured by the Henry Hub Gulf Coast Natural Gas Spot Price — will be higher than in 2012.
  4. The Obama Administration will approve the northern leg of the Keystone XL pipeline.
  5. US oil production will continue to grow (but at a slower pace than in 2012), reaching the highest level since 1995.

CONTINUE»

By Robert Rapier on May 21, 2013 with 9 responses

Who Loses from Rising Natural Gas Prices?

Chemicals and Fertilizer Industries

In last week’s post Who Wins from Rising Natural Gas Prices?, I discussed the sectors that would benefit from rising natural gas prices. This week, let’s talk about the potential losers.

Natural gas is an important feedstock for the chemicals and fertilizer industries, so higher prices could pressure those sectors. Oil companies with significant chemical operations could also see this business segment take a hit, but based on ExxonMobil’s (NYSE: XOM) advocacy of liquified natural gas (LNG) exports, it clearly believes the net effect of rising natural gas prices on the company would be positive.

Dow Chemical (NYSE: DOW), on the other hand, has come out strongly against LNG exports because of the potential cost to its own business and that of other heavy users of natural gas. Ironically, last week the Department of Energy granted a permit to a facility called Freeport LNG — in which Dow owns a 15% stake. Dow’s answer to that is that they invested in the facility when it was supposed to be an LNG import facility.

Biofuels Sector

But the risks to the chemicals and fertilizer industries are well-known. What isn’t as well-known is the risk from higher natural gas prices to the biofuels sector. This may be counterintuitive, since renewables like wind and solar power become more competitive as natural gas prices increase. CONTINUE»

By Robert Rapier on May 14, 2013 with 2 responses

Who Wins from Rising Natural Gas Prices?

Over the past two years the spot price of natural gas fell from nearly $5 per million British thermal units (MMBtu) in June 2011 to less than $2 per MMBtu in April 2012, before beginning a steady climb back to the current level of about $4 per MMBtu. Prices have been supported by resilient demand as well as diminishing supply from some of the more mature shale formations and the depleted wells offshore.

Stronger natural gas prices are good news for some and bad news for others. Natural gas producers like Chesapeake Energy Corporation (NYSE:CHK) were hit especially hard as gas prices fell. Between June 2011 and April 2012, CHK’s share price declined 25 percent. But over the past 12 months, CHK has rallied 36 percent as gas prices recovered. Since Chesapeake is the nation’s second-largest producer of natural gas, it’s not surprising that its shares track the price of the commodity. The company isn’t diversified, so it is nearly a pure play on natural gas.

(Related: Short-Term Trend in U.S. Natural Gas Prices Point Higher)

CONTINUE»

By Robert Rapier on Jan 14, 2013 with 4 responses

Five Energy Predictions for 2013

Normally when I list the Top 10 stories of the year, I close the post by making predictions for the upcoming year. For 2012, my predictions were:

  1. President Obama will easily win reelection, which means that energy policies will likely continue along the current trajectory.
  2. The Keystone Pipeline project will be approved (although that decision may still slide into 2013).
  3. Natural gas prices will remain low, averaging below $5/MMBTU for the year.
  4. Oil prices — both West Texas Intermediate and Brent — will average above $100/barrel in 2012.
  5. We will look back on the fact that Newt Gingrich was once the leading Republican contender for president and have a good laugh about it.

Those predictions were correct for the most part. The first and third were correct, I believe the second will ultimately be correct, the fourth was mixed (Brent averaged above $100 and WTI averaged about $94), and the 5th just depends on one’s personal opinion. In my opinion, it is correct.

However, when I listed the Top 10 Energy Stories of 2012 — as voted upon by readers — I failed to list my predictions for 2013. So here they are:

  1. Brent and WTI crude prices will both average less in 2013 than in 2012.
  2. The Brent-WTI price differential — which has widened substantially in the past two years — will narrow in 2013.
  3. The average annual price of natural gas — as measured by the Henry Hub Gulf Coast Natural Gas Spot Price — will be higher than in 2012.
  4. The Obama Administration will approve the northern leg of the Keystone XL pipeline.
  5. US oil production will continue to grow (but at a slower pace than in 2012), reaching the highest level since 1995.

CONTINUE»