Factor - Natural Gas Supply
Commentary
The latest report from the Department of Energy shows that in January, U.S. production posted its first drop in seven months. However, it was still a 6 percent increase over 2010. Overall, production continues to increase. While falling imports from Canada, lower LNG import volumes, and increasing exports to Mexico work to offset some supply growth, total natural gas supplies continue to expand.
Factor - Demand
Commentary
Industrial demand continues to show consistent improvement over last year. March was the third consecutive month where the PMI was above 60. An index level above 50 indicates growth. Natural gas demand for electric generation may remain strong due to a recovering economy and competition with coal. Coal substitution has been spreading. This demand could be offset by expectations of a mild summer.
Factor - Weather
Commentary
Gas weighted heating degree days were 3 percent above the 30-year normal (colder) this past winter (November 2010 – March 2011) and 4 percent higher than last year. Weather Services International's forecast shows total degree days for April – June right at the 30-year average. Most forecasters are calling for an above-average hurricane season this year. The most current forecast, coming from Colorado State University, is predicting 16 named storms, with nine developing into hurricanes and five becoming major hurricanes (category 3 or higher). They predict a 72 percent chance of a major hurricane making landfall somewhere along the U.S. coastline, compared with a long-term probability of 52 percent.
Factor - Storage
Commentary
The final withdrawal of the season was 45 Bcf, ending the season with 1,579 Bcf in storage. This compares to 1,665 Bcf last year and a five-year average of 1,569 Bcf. With future production still ample, most forecasters are projecting end of summer storage to be just under last year's level of 3,840 Bcf. This compares with the five-year average of 3,600 Bcf.
Factor - Economy
Commentary
After hitting a three-year high in February, consumer confidence fell by over eight points in March. Japan is our fourth largest trading partner, and the first effects of Japan's natural disasters are starting to reach the U.S. economy. Adding to the turmoil, political unrest in the Middle East and North Africa is holding oil prices above $100. On the bright side, consumer spending continues to grow, posting the seventh consecutive increase in February. The latest report from the BLS shows that the economy is gradually but consistently adding jobs. The unemployment rate is down 0.1 percent at 8.8 percent.
Factor - Summary
Commentary
The economy continues to give mixed signals. Some sectors, such as the chemical industry, appear to be recovering. Others, such as housing/construction, continue to struggle. The earthquake in Japan has produced opposing effects. The loss of nuclear power increases the global demand for natural gas. However, as the Japanese economy struggles to recover, it could have a chilling effect on the global economy. Barring negative regulatory rulings, the industry appears ready to meet any demand increases with the ample supply available. However, there are more and more questions surrounding hydraulic fracturing and the effect it has on water quality. If this movement gains traction, it could put a temporary dent in the available supply until the industry adequately responds.
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Factor - Natural Gas Supply
Commentary
The latest report from the Department of Energy shows that in January, U.S. production posted its first drop in seven months. However, it was still a 6 percent increase over 2010. Overall, production continues to increase. While falling imports from Canada, lower LNG import volumes, and increasing exports to Mexico work to offset some supply growth, total natural gas supplies continue to expand.
Factor - Demand
Commentary
Industrial demand continues to show consistent improvement over last year. March was the third consecutive month where the PMI was above 60. An index level above 50 indicates growth. Natural gas demand for electric generation may remain strong due to a recovering economy and competition with coal. Coal substitution has been spreading. This demand could be offset by expectations of a mild summer.
Factor - Weather
Commentary
Gas weighted heating degree days were 3 percent above the 30-year normal (colder) this past winter (November 2010 – March 2011) and 4 percent higher than last year. Weather Services International's forecast shows total degree days for April – June right at the 30-year average. Most forecasters are calling for an above-average hurricane season this year. The most current forecast, coming from Colorado State University, is predicting 16 named storms, with nine developing into hurricanes and five becoming major hurricanes (category 3 or higher). They predict a 72 percent chance of a major hurricane making landfall somewhere along the U.S. coastline, compared with a long-term probability of 52 percent.
Factor - Storage
Commentary
The final withdrawal of the season was 45 Bcf, ending the season with 1,579 Bcf in storage. This compares to 1,665 Bcf last year and a five-year average of 1,569 Bcf. With future production still ample, most forecasters are projecting end of summer storage to be just under last year's level of 3,840 Bcf. This compares with the five-year average of 3,600 Bcf.
Factor - Economy
Commentary
After hitting a three-year high in February, consumer confidence fell by over eight points in March. Japan is our fourth largest trading partner, and the first effects of Japan's natural disasters are starting to reach the U.S. economy. Adding to the turmoil, political unrest in the Middle East and North Africa is holding oil prices above $100. On the bright side, consumer spending continues to grow, posting the seventh consecutive increase in February. The latest report from the BLS shows that the economy is gradually but consistently adding jobs. The unemployment rate is down 0.1 percent at 8.8 percent.
Factor - Summary
Commentary
The economy continues to give mixed signals. Some sectors, such as the chemical industry, appear to be recovering. Others, such as housing/construction, continue to struggle. The earthquake in Japan has produced opposing effects. The loss of nuclear power increases the global demand for natural gas. However, as the Japanese economy struggles to recover, it could have a chilling effect on the global economy. Barring negative regulatory rulings, the industry appears ready to meet any demand increases with the ample supply available. However, there are more and more questions surrounding hydraulic fracturing and the effect it has on water quality. If this movement gains traction, it could put a temporary dent in the available supply until the industry adequately responds.
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