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Consumers Paying More as Nat Gas Cash Prices Spike

Consumers Paying More as Nat Gas Cash Prices Spike.

By Joao Peixe | Thu, 06 February 2014 22:43 | 0

As natural gas prices climb, reaching over $5/mcf again on 4 February, and with an unseasonably cold winter, local utilities say that natural gas customers’ bills are 30-40% higher now than last winter.

Last week, we saw natural gas prices rise above $5 for the first time in three years, then falling back a bit only to rise again on 4 February, with March futures trading above $5.25/mcf—or more than 6%, according to expert trader Dan Dicker.

Customers are footing the bill for higher gas prices and the coldest November-January period in four years in the Midwest and Northeast.

In Omaha, Nebraska, weather has been about 30% colder this year than last, and utility regulatory officials saying that gas use among customers is up while bills are up by 34-38% over last year.

Utilities are paying high prices for gas because demand has been higher and consumption rates at a level that has reduced storage by about 17% over the average of the previous five years.

In the meantime, there is a great deal of disconnect between cash prices and futures prices for natural gas, with futures trading an increasingly volatile business. While 6 February saw a spike in next-day prices, according to Reuters, 5 February saw natural gas futures fall sharply due to longer-term mild weather forecasts.

“The futures market appears to be disconnected from key developments occurring in the physical market,” Reuters quoted BNP Paribas analyst Teri Viswanath as saying on 6 February. “Today we witnessed a marked increase in spot prices for every consuming region, suggesting that utilities might be rationing limited inventories by purchasing gas off the market.”

As Dicker noted for The Street, “Low stockpiles caused by sequestration and a rush of domestic exploration and production companies away from natural gas production in favor of shale oil is taking its toll and providing the first real and consistent support of prices since 2007. Suddenly, natural gas markets are vulnerable to price spikes and traders are afraid to be short.”

By. Joao Peixe of Oilprice.com

The moral of the natural gas/winter weather story  |  Peak Oil News and Message Boards

The moral of the natural gas/winter weather story  |  Peak Oil News and Message Boards.

If the ancient Greek storyteller Aesop were alive today, he might have written a fable about North American energy markets. Aesop’s sheet of papyrus may have ended with the moral: “If you wait long enough, gas prices will go up.”

Last week, the ticker showed the highest continental natural gas prices in four years, momentarily bobbing above $5.50 (U.S.) per 1,000 cubic feet (Mcf) in the United States and $5 (Canadian) in Canada. We know Aesop could have easily penned another truism, “Cold weather drives higher prices,” but would he have offered the more complex wisdom: “Prices under $3.50 are not sustainable?”

Are we to believe that the days of two or three dollars for a 1,000 cubic feet of the coveted heating fuel are gone?

Since December, the shivering populace on the eastern side of the continental divide have dialled up their thermostats and brought vigour back to winter natural gas consumption. Scenes of snowy roads and frosty mustaches made it look like conditions were exceptionally frigid in the U.S. and Canada. They were (and still are). But averaged over the span of the continent, the numbers tell a different story; the spreadsheets show that what we have been experiencing is nothing more than a good old-fashioned winter. While thermometers have been showing cold in the east, readouts in western states like California have been indicating warm temperatures.

Of all the natural gas burned in North America in one year, between 30 and 35 per cent is seasonally related to warming up our bodies in the winter months. Heating Degree Days (HDDs) are a measure of cold weather intensity that correlate directly to natural gas consumption. Figure 1 shows weekly U.S. HDDs from 2000 to present. The seasonality of heating is obvious: Furnaces are turned off in mid-summer and blowing hard in the third week of January.

What’s notable about our HDD chart this week is that there is nothing notable about this winter of 2013-14. Total HDDs have been close to the long-term average, back to 2000. In fact, this winter’s performance is unremarkably reminiscent of the winter of 2009-10.

It was the winter of 2011-12 that was weird – one of the warmest on record. And last winter, that of 2012-13, was also anomalously short on heating, and therefore gas demand. Back to back, these abnormally weak winters were juxtaposed against excessive gas output from shale drilling. On top of that, large quantities of associated gas – natural gas liberated as a byproduct from oil drilling – also pressurized the pipeline gauges to “full.” Storage levels ballooned out as a consequence. Not enough consumption and too much production combined in a “perfect storm” that pummelled gas for two years hence.

Today, North American natural gas production is still rising, but nowhere near the growth rate experienced between 2007 and 2012. During that boom era, productive capacity in the U.S. expanded by 20 per cent (10 billion cubic feet a day). Today, output growth is running at a reasonable 2 per cent to meet incremental demands, which means that the demand-pull of a normal winter isn’t masked by a surplus of production.

By the numbers, this coming year is like déjà vu 2010, which was arguably a pretty “normal” year. Volumes of natural gas in storage today – where supply meets demand – are on a restrained 2010 trajectory. By association, price indications for 2014 also seem to be tracking 2010. Back then Henry Hub averaged $4.40 (U.S.) Mcf while AECO logged the year at $4.00 (Canadian) Mcf. Those numbers are reasonable expectations for 2014.

Yet neither producer nor consumer should believe that $4.00 (U.S.) Mcf ($3.50 U.S. Mcf AECO) is a stable price, although the bias is for a firmer floor. Volatile weather will always conspire to rattle the markets up and down. Fundamentals are running hot and cold too. New drilling and completion techniques continue to improve productivity, yet the marginal cost of bringing dry gas to market is still obscured by waste gas coming from oil drilling. Production growth is becoming increasingly dependent on “sweet” areas like the Marcellus (concentration of assets is usually accompanied by greater volatility). And the price impact of potential liquefied natural gas exports may excite markets in a couple of years.

More than anything, the past couple of months remind us that natural gas is a commodity that can’t sit still. Prices are, and will continue, to be volatile. So it’s prudent for both producers and consumers to heed Aesop’s advice in his classic winter fable, The Grasshopper and the Ant: “It is wise to plan for tomorrow today.”

Peter Tertzakian is chief energy economist at ARC Financial Corp. in Calgary and the author of two best-selling books, A Thousand Barrels a Second andThe End of Energy Obesity.

Globe and Mail

Polar Vortex – The Sequel: Coming To A Frozen US City Near You | Zero Hedge

Polar Vortex – The Sequel: Coming To A Frozen US City Near You | Zero Hedge.

Just when everyone thought the infamous polar vortex is gone (if not quite forgotten, having dipped the temperatures in some part of the US to sub-Martian levels), it’s baaaack. Sky News reports that America is set to be hit by another blast from the polar vortex although this time Niagara falls may not freeze, as temperatures are likely to be higher than last week’s extreme conditions. “The polar plunge is expected to move south from Canada, bringing colder air and sub-zero temperatures to the US this week. Forecasters say it will sweep over the lower Mississippi Valley and Midwest on Tuesday and Wednesday, and then hit the East on Thursday. The main thrust of the cold air will follow up a couple of days later.”

Polar vortex to return to US

More from Sky:

“Following the retreat of Arctic air this weekend, waves of progressively colder air will move southward over Canada this week,” said Paul Pastelok, AccuWeather.com’s lead long-range forecaster. “We will likely see a piece of the polar vortex break off and set up just north of the Great Lakes spanning January 16 to 20.

“This next main arctic blast will not rival, nor will be as extensive as the event last week.”

Many areas are still recovering from last week’s polar vortex, which saw the mercury plunge to -12C (11F) in New York City and -24C in Chicago.

A Coast Guard cutter was brought in to keep shipping lanes open, but the ice was too thick to break in places.

Residents have flocked to the river banks to take pictures of the polar conditions.

Rick Wilson, from Yardley, Pennsylvania, told an ABC TV station: “Incredible. I came down here just to take pictures of this. My grandchildren would not believe this. This looks like something you’d find in Antarctica.”

Sky News weather producer Jo Robinson said: “After a milder spell, plunges of cold air are expected later in the week. “The first is expected across parts of Canada, the Midwest and eastern parts of the US over the next few days. “More significant cold air will affect those areas by the weekend, but thankfully it doesn’t look to be as cold as last week.”

Of course, what is bad news for anyone who needs to buy heating at surge pricing, is great news for apologists of bad economic data, because don’t look now, but January employment numbers just became “meaningless” and if the BLS issues another disappointing jobs report on the first Friday of February, it will be the weather’s fault. And, “logically”, if the report is great, it will be entirely due to the recovery.

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