2013 – A Look AheadOctober 22nd, 2012
OMAHA (Capstone Energy Services) – Recent strength in the natural gas market indicates that prices in 2013 will be significantly higher than in 2012. The average NYMEX settlement price for 2012 through October was $2.63 per MMbtu. Assuming current traded prices for November and December are representative, the average for 2012 will be very near to $2.80 per MMbtu. The current January to December 2013 average NYMEX futures price as of Wednesday is $4.004 per MMbtu, a potential 43% increase in cost relative to 2012!
These market prices may be inflated relative to the underlying fundamentals. The surplus of natural gas that accumulated last winter has been mostly eliminated, but inventories remains on track to enter this winter at another record high. Only 64 Bcf of injections will be required over the next three weeks to exceed the previous Nov. 1 high mark. Much of the increased demand over the last six months has been from fuel for electric generation driven by record hot weather and displacement of some existing coal generation facilities with inexpensive natural gas. Prices are now up and the economics of running natural gas vs. coal have shifted. Summer cooling demand has ended. National Weather Service seasonal forecasts are calling for another warmer than normal winter for the eastern two-thirds of the country, suggesting lower than normal natural gas consumption, although not as low as last year.
Nevertheless, prices remain strong. Over the last four weeks, traders have reduced short positions and increased long positions, adding momentum to rising pricing as the winter heating season approaches. While there will likely be some price volatility during the next few weeks, a significant downward price shift, as has historically occurred in the fall, is becoming highly unlikely. Prices now look to remain relatively strong until forecasted warm winter weather becomes a reality and storage inventories are deemed by analysts and traders to be sufficient.
Unless cold winter demand is far greater than forecast, prices should moderate as the winter progresses, but the expectation for even more natural gas generation facilities on line next summer will likely prevent a repeat of last winter’s precipitous declines. 2013 looks to be much more expensive than 2012 with analyst projections now ranging from $3.25 to $4.50 per MMbtu. If storage inventories hold up through the winter, 2013 prices will probably average in the mid $3.00 range, but if they drop near or below the five year average, then they may well be nearer $4.00. In some months prices may drop into the high $2.00 range, but those periods will not be the norm. Increasing summertime electric generation consumption is changing the dynamic of storage inventory requirements and related prices as the industry migrates from a one to a two peak season annual profile.
By Ed Freeman
The physical quantity of gas requested, typically in MMBtu/day, for a specific contract or for all contracts at a specific point.
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A unit of heating value equivalent to 100,000 British thermal units (Btu).
The component of electric power that performs work, typically measured in kilowatts (kW) or megawatts (MW)--sometimes referred to as Active Power.
The process of delivering natural gas into a storage field for future delivery and use.
Statutory maximum lawful prices for various categories of natural gas, including gas destined for both the intrastate and interstate markets.
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