Over the past month since the NYMEX natural gas contract hit the low of $1.91/MMbtu, the price has screamed upward by $.83/MMbtu, or 44% to $2.737/MMbtu yesterday, up 3 cnts. That’s a pretty good run. Do the fundamentals really support that price level? What has changed in the supply/demand balance to warrant such a turnaround? Is this price run a head fake? We’ll explore these issues today.
First, the runup. The graph below tracks the prompt NYMEX natural gas price since April 11th. It has been a steady ramp up over the past 25 trading sessions since the $1.91 low.
As documented here in several postings (e.g, Bright Spot and What Was Down is Now Up), the gas fired generators rescued the gas producers from themselves by cranking up gas fired generation. That slowed down the march of natural gas storage inventories toward a hard landing sometime in the Sept.-Nov. timeframe. And the recognition that the gas market could dodge the bullet again this year was enough to jump start the run-up. At that point all those who believed that natural gas hit a bottom piled on, and the result has been a $.83/MMbtu price increase.
Let’s do a reality check to see if the fundamentals really support this kind of number. It has been about a month since we looked at the Bentek Supply/Demand table, so it’s about time to check out those numbers again. Recall that Bentek produces this tabular representation of the U.S. supply/demand balance each day based on daily receipts and deliveries scheduled at thousands of pipeline meter locations around the country. Bentek aggregates this data in such a way to assess the overall supply/demand picture (and thus storage balances). The table shown here is a subset of the Bentek report that they provide periodically to a few companies that cover natural gas markets. Thanks to Bentek for including RBN on the distribution.
There are two sections of the table. On the left we have current month-to-date average volumes, comparing May 2012 with May 2011. On the right, 2012 Year-to-Date (YTD) volumes are compared to the same period in 2011. Focus on the YTD numbers. Dry production (total production from dry gas basins plus the residue gas stream from gas plants in wet gas basins) is up 4.6 Bcf/d. That is exactly the increase that we saw in these numbers last month. Basically gas production has been flat as a pancake. Same story for Canadian imports and LNG sendout. The numbers are far below 2011, but about the same as a month ago.
On the demand side, YTD power burn (gas fired power generation) is the real kicker. Last month the delta over 2011 was 4.9 Bcf/d. Yesterday that number had increased to 5.3 Bcf/d. For the current month the year-on-year delta is even more dramatic, 6.9 Bcf/d in May versus 5.9 Bcf/d when we looked at the numbers last month. But we can’t ignore residential/commercial demand. YTD was 6.9 Bcf/d below 2011 in April but is only 5.8 Bcf/d below 2011 in May. Only industrial demand is sitting pretty much where it was last month.
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