Factor - Natural Gas Supply
Commentary
The year began with a small production increase of one percent in the Marcellus shale, Colorado and New Mexico. Louisiana posted a decline of two percent – reiterating the weak economics of dry shale plays like Haynesville. The rig count dropped in March from 710 to 658. Although many of these rigs are shifting over to oil, they will continue to add to the gas supply via associated production. The interplay between declining production from current gas wells and natural gas production from wells targeting liquids and oil will determine the production profile in future months.
Factor - Demand
Commentary
Industrial gas demand in April was forecasted to be roughly four percent higher the same period last year. The latest reading for the Purchasing Managers Index (PMI), showed that the index rose by one point in March to 53.4. Commentary from the report indicated that demand is strong in the chemicals sector, "Business is robust, driven by a healthy demand for exports and relatively stable raw materials pricing". Meanwhile, gas-fired power generation has also added to demand. Coal-to-gas substitution is currently in the seven-to-eight billion cubic feet per day (Bcf/d) range – an almost five Bcf/d increase over last year.
Factor - Weather
Commentary
March, like the past winter, was one of the warmest on record. March gas-weighted heating degree days (GWHDD) were 37 percent below both normal levels and last year's levels. The November through March winter GWHDDs were 18 below normal and 20 below last year. Staying true to form, expert weather forecasters are calling for a warm summer.
Factor - Storage
Commentary
The winter storage withdrawal season ended at 2.48 trillion cubic feet (Tcf) – the highest level of inventory on record. Going into the summer, this storage overhang will likely be the biggest source of downward pressure on prices.
Factor - Economy
Commentary
While the economy continues to show signs of improvement, high gasoline prices threaten to rain on the parade. Along with positive manufacturing indices, the housing market is showing signs of life. Consumer confidence has rebounded into the 70's, but the latest reading shows the detrimental impact of $4 gasoline prices. Should the price of oil and gasoline continue to rise, consumer spending – and therefore natural gas demand – may begin to deteriorate.
Factor - Summary
Commentary
Analysts expect producers to pull back on drilling activity and anticipate a stronger demand from power generation and the industrial sector to avoid reaching the maximum operational storage capacity limit of 4.1 Tcf by summer's end. If weather continues the warmer than normal trend, forecasters expect natural prices to remain the lowest in almost a decade.
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Factor - Natural Gas Supply
Commentary
The year began with a small production increase of one percent in the Marcellus shale, Colorado and New Mexico. Louisiana posted a decline of two percent – reiterating the weak economics of dry shale plays like Haynesville. The rig count dropped in March from 710 to 658. Although many of these rigs are shifting over to oil, they will continue to add to the gas supply via associated production. The interplay between declining production from current gas wells and natural gas production from wells targeting liquids and oil will determine the production profile in future months.
Factor - Demand
Commentary
Industrial gas demand in April was forecasted to be roughly four percent higher the same period last year. The latest reading for the Purchasing Managers Index (PMI), showed that the index rose by one point in March to 53.4. Commentary from the report indicated that demand is strong in the chemicals sector, "Business is robust, driven by a healthy demand for exports and relatively stable raw materials pricing". Meanwhile, gas-fired power generation has also added to demand. Coal-to-gas substitution is currently in the seven-to-eight billion cubic feet per day (Bcf/d) range – an almost five Bcf/d increase over last year.
Factor - Weather
Commentary
March, like the past winter, was one of the warmest on record. March gas-weighted heating degree days (GWHDD) were 37 percent below both normal levels and last year's levels. The November through March winter GWHDDs were 18 below normal and 20 below last year. Staying true to form, expert weather forecasters are calling for a warm summer.
Factor - Storage
Commentary
The winter storage withdrawal season ended at 2.48 trillion cubic feet (Tcf) – the highest level of inventory on record. Going into the summer, this storage overhang will likely be the biggest source of downward pressure on prices.
Factor - Economy
Commentary
While the economy continues to show signs of improvement, high gasoline prices threaten to rain on the parade. Along with positive manufacturing indices, the housing market is showing signs of life. Consumer confidence has rebounded into the 70's, but the latest reading shows the detrimental impact of $4 gasoline prices. Should the price of oil and gasoline continue to rise, consumer spending – and therefore natural gas demand – may begin to deteriorate.
Factor - Summary
Commentary
Analysts expect producers to pull back on drilling activity and anticipate a stronger demand from power generation and the industrial sector to avoid reaching the maximum operational storage capacity limit of 4.1 Tcf by summer's end. If weather continues the warmer than normal trend, forecasters expect natural prices to remain the lowest in almost a decade.
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