The combination of increased natural gas demand in Southern California, due to maintenance on two nuclear generators, and pipeline constraints into the region has contributed to an increase in the basis, or the differential between regional prices and the benchmark Henry Hub price. The Southern California representative price is now about at parity with the Northern California PG&E Citygate pricing point, which is usually several cents above the Southern California price. Additionally, as the Henry Hub has continued a downward trend over the past couple of weeks, California prices have declined less and widened the basis. Among major infrastructure issues:
- Two nuclear units (totaling more than 2,000 MW) at the San Onofre Nuclear Generating Station, located south of San Clemente, are currently offline and are expected to remain out of service until at least the end of July, a few months longer than was originally planned. BENTEK Energy LLC (Bentek) estimates that the outage of the nuclear generators could mean additional demand of about 0.5 billion cubic feet (Bcf) per day of natural gas for power burn during the peak summer months if there are further delays.
- Southern California Gas is conducting maintenance on its system through May 4 and restricting all receipts on its North Needles point, which had averaged close to 490 million cubic feet (MMcf) per day before the outage, according to Bentek reports.
- Kern River cut secondary gas capacity for a few days this week at a compressor station in Southern Nevada, close to where the pipeline enters Southern California.
The Henry Hub day-ahead price remained below $2.00 per MMBtu throughout the week and traded in a narrow 4 cent range with a high of $1.91 per MMBtu last Wednesday, a dip to $1.87 per MMBtu on Thursday and Friday, and after advancing slightly Monday and Tuesday closed the week at a low of $1.87 per MMBtu yesterday. Numerous other spot market pricing points across the country also remained below the $2.00 per MMBtu mark throughout the week.
At the NYMEX, the May 2012 contract fell slightly, from $1.984 per MMBtu last Wednesday to $1.951 per MMBtu yesterday, a decrease of 3.3 cents (1.7 percent). With the exception of Monday, when it reached $2.016 per MMBtu, the contract remained under the $2.00 per MMBtu level throughout the week. The 12-Month Strip (average of May 2012 to April 2013 contracts) remained above $2.60 per MMBtu throughout the week, closing yesterday at a low of $2.612 per MMBtu, down for the week 8.6 cents per MMBtu (3.2 percent) from last Wednesday’s high of $2.698 per MMBtu.
Prices at nearly all downstream trading locations continued on a downward trend through the end of last week and began to firm up on Monday, led by Northeast trading points. Spot prices at the Algonquin Citygate trading point for delivery into Boston, which started the week at $2.74 per MMBtu, dropped to $2.09 per MMBtu on Friday and then increased for the remainder of the week to close at $2.11 per MMBtu yesterday (down 23.0 percent over the week). Over the same period, the Chicago citygate price fell from $2.02 per MMBtu last Wednesday to $1.94 per MMBtu on Friday before rebounding and ending the week at $2.00 per MMBtu (down a scant 1.0 percent for the week).
Total consumption over the report week (Wednesday to Wednesday) decreased in all sectors except power generation. According to estimates from Bentek, domestic natural gas consumption fell by 4.5 percent from last week. The residential/commercial sector led the decline with a 17.4 percent loss, while the industrial sector posted a 3.0 percent loss. In contrast, the power generation sector registered a 7.8 percent increase over the report week, with double-digit percentage increases in the Northeast, Midwest, and Southeast. These increases were in part offset by double-digit power burn declines in the Southwest and Pacific Northwest.
Total supply was down slightly for the week due to a small decline in dry gas production. According to Bentek estimates, the week’s average total natural gas supply registered a 0.5 percent decrease from last week’s level, led by a decline in dry gas production. Domestic weekly dry gas production was 0.6 percent lower than the previous week, yet 5.7 percent above the same time last year. The decrease in this week’s dry gas production was accompanied by a 1.2 percent increase in imports from Canada, which stand 6.7 percent below year-ago volumes for the same week. There was an 11.0 percent decrease in liquefied natural gas (LNG) sendout during the week, with sendout volumes 64.8 percent below year-ago levels.
Working natural gas in storage increased to 2,512 Bcf as of Friday, April 13, according to EIA’s WNGSR. This represents a net injection of 25 Bcf from the previous week. This week’s injection is slightly less than the 5-year (2007-2011) average injection for the same week of 26 Bcf. Last year, during the same week, the implied net injection was 42 Bcf, likely because of warmer temperatures during the same week last year. Working inventories are currently 871 Bcf greater than their year-ago levels and 919 Bcf greater than the 5-year average.
All three storage regions posted increases this week. Inventories in the East Region increased by 13 Bcf; inventories in the West, by 5 Bcf; and inventories in the Producing Region, by 7 Bcf. Stocks in all three regions remain well above year-ago and five-year average levels. In the Producing Region, working natural gas inventories increased 1 Bcf in salt cavern facilities and increased 6 Bcf in the nonsalt cavern facilities.
Temperatures in the lower 48 States were close to normal, but cooler than the above-normal temperatures during the same week last year. The average temperature in the U.S. was 51.6 degrees, only 0.3 degrees off the 30-year normal of 51.3. While overall temperatures were close to normal, temperatures varied somewhat by Census Division. The West South Central and Mountain Census Divisions were both more than 4 degrees warmer than the 30-year normal, while the East South Central was 2.4 degrees cooler than normal.