demand

Storage, the great balancing mechanism of the natural gas market in North America is heading toward another evolution in its usage, flow patterns and economics.  Not too many years ago, natural gas storage was the hottest midstream investment opportunity going, expected to synchronize inbound flotillas of LNG imports with seasonal domestic demand.  Winter vs. summer price differentials were wide, prices were volatile and storage economics looked great.  When shale gas happened, those differentials evaporated along with storage economics.  Today another phase looms for natural gas storage as Marcellus and now Utica production ramp up on top of (or more accurately, underneath) the largest storage region in the world – the Northeast U.S.  This is a big topic with big implications.  So rather than jumping into the middle of the upcoming gas storage transformation, we will walk through a multi-part North America natural gas storage blog series -  its history and status, its challenges, who’s involved, and finally what could be in store going forward.  Today we’ll start with some natural gas storage basics.

Last Thursday (March 28, 2013) the CME Henry Hub natural gas futures contract closed out the first quarter of 2013 at $4.024/MMBtu (prices slipped 0.9 cents to $4.015/MMBtu Monday). A year ago the futures price was $2.126/MMBtu – about half what it is today. During that same period, US dry gas production has risen by 0.5 Bcf/d to 64.1 Bcf/d and natural gas power burn has fallen by 2.2 Bcf/d (source: Bentek). With production still increasing and demand from power generation falling it seems unlikely that the market can sustain $4/MMBtu prices. Today we look at the supply demand picture at the end of the winter season.

US natural gas pipeline exports to Mexico increased by 45 percent in the 9 months to September 2012. This dramatic increase in flows across the US/Mexico border was caused by the need to fill a widening gap between Mexico’s dwindling supplies of gas from domestic production and higher demand for gas to generate electricity. Current low US natural gas prices have made increased pipeline imports an attractive option for Mexican State Energy Company PEMEX but not without complications. Today we take a look at Mexico’s rising gas imports from the US.

Understanding the natural gas market is not for the faint hearted. Natural gas production recently returned to record levels last seen before prices fell through the floor.