seasonal

Freezing weather along the Atlantic Coast has disrupted refinery operations threatening supplies of refined products – in particular distillates – in an already tightly balanced market. The resultant spike in heating oil prices has encouraged European traders to ship cargoes to New York – a reversal of flow patterns seen in recent years. Today we look at northeast distillate fundamentals and explain why European imports are headed across the pond.

In the dead of the natural gas winter season when US producers count on strong margins from higher gas prices, the Transco Z6 New York hub is trading on average nearly flat  with U.S. benchmark Henry Hub, LA – the delivery point for the CME NYMEX natural gas futures contract. This is a dramatic departure from historical winter norms in the Northeast market, where prices relative to Henry and just about every other gas hub in the Northeast have traditionally carried hefty premiums in the winter. Moreover, the forward curves indicate these basis levels are the new norm for Northeast pricing. The forward curve for Transco Z6 New York shows basis for 2015 barely above Henry Hub for the year, with several months at more than $1.00/MMBtu discount. Today we look at what’s behind major changes in northeast forward curves.

Six months ago, the natural gas forward price for 2021 averaged $5.15/MMBtu.  Back then a producer could hedge forward production at that price.  Today 2021 is only $4.63/MMBtu, a decline of $0.52/MMBtu even though we are now in the middle of the winter.   Today the forward market doesn’t get above $5.00/MMBtu until 2026, certainly a disappointment for many a producer that didn’t hedge last summer. What does the market know about the future that is different from what was known back in June?  How do these forward curves work in the first place?  In this new blog series on North American natural gas forward curves we will provide background on the mechanics of forward curves, examine the forward curve in each of the major regions in the North American natural gas market, and do a deep dive into natural gas historical trends, major drivers and market expectations as related to forward markets.  

From a high of $6.14/MMBtu in February 2014 natural gas prices have fallen to $4.013/MMBtu yesterday (September 17, 2014). In large part the price decline reflects the recovery of gas storage levels from record lows in March at the end of a freezing winter. Booming production and a milder summer have provided the surplus supplies needed for injections to replenish inventories reasonably close to normal levels (the latest storage numbers are released by the Energy Information Administration (EIA) this morning (September 18, 2014). Today we describe the impact of supply and weather driven demand on storage levels.

Propane has received a lot of airtime in recent months given the Polar Vortex and heavy crop drying demand anomalies coinciding with growing propane export volumes.  Now it’s time to show normal butane a little love as normal butane exports almost tripled from this time last year.  In January 2013, 22 Mb/d of butane was exported; that number was 63 Mb/d in January 2014, as reported by the EIA.  All indications are that butane export volumes will be experiencing an astronomical growth rate over the next five years, reaching 300 Mb/d by 2019.  What are the factors driving this rate of growth, and what are the implications for refiners and petrochemical companies?  In today’s blog, we assess the rapid growth in normal butane exports.

Last week (ending April 4) the summer 2014 natural gas storage injection season began with a whimper by adding 4 Bcf to empty tanks pummeled by the Polar Vortex. That was a slower than expected start to the Herculean task of replenishing gas stocks before next winter. A lot of factors will have to fall into place for that to happen. A too-hot summer could pull gas away from injection and into demand for power burn. Today we continue our analysis of regional power burn prospects with a look at New England demand this year.

Two years ago in June 2011 the forward curve for NYMEX natural gas pointed to $5/MMBtu for gas in 2012 – rising to $8/MMBtu by 2022. This week (June 2013) the forward curve structure looks much the same except that expected prices in 2022 are down two bucks at $6/MMBtu. In between those forward curves, spot prices for natural gas plunged to less than $2/MMBtu in April 2012 and climbed back up to $4/MMBtu a few weeks ago.  Today we consder how changing production and new patterns of demand look set to change gas market price structures for good.

The natural gas trading market has been getting a lot of attention lately and not in a good way. A couple of weeks ago the Wall Street Journal published two articles describing the fact that traders have started to reduce their presence in natural gas storage.  At about the same time, Oneok, once a big player in energy services shut down its operation that had used natural gas storage and pipeline transportation capacity to provide those services to the industry.   With gas production still coming on strong, more gas being used for power generation and the possibility of serious LNG exports on the way, what’s the problem?  Today we look deeper into turmoil in the natural gas markets.

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.

It is a vast understatement to say that the natural gas world is in a state of significant transformation in the United States.  On the surface, the shale production story and its impact on supply, and by extension demand on a national basis seem profound as is, but the truly dramatic stories are