Normal winter could push US natural gas higher: NGSA

OREANDA-NEWS. October 06, 2016. A return to normal weather will boost natural gas demand by 12pc this winter compared to last, a trade association said today.

The higher demand will maintain upward price pressure, according to a study released by producer group the Natural Gas Supply Association (NGSA).

Mexican exports will rise 25pc to 4 Bcf/d this winter, the group said. LNG exports — defined as cargoes from Cheniere Energy's Sabine Pass terminal in Louisiana less imports at the Engie-owned terminal in Everett, Massachusetts — will persist at 0.8 Bcf/d.

Spot values yesterday of \\$2.83/mmBtu at the benchmark Henry Hub in Louisiana are already 43pc higher than last winter. The NYMEX November-March futures contract strip for the coming winter is 20pc higher than for last winter on the same date.

But producers in the Marcellus and Utica shales do not get those netbacks at those levels.

Bill Green, chairman of the association and downstream marketing vice president for Devon Energy, said that a lot of wells in those regions have been choked back, awaiting higher prices.

Spot values on Transco's Leidy Line in Pennsylvania recently fell below 40?/mmBtu, their lowest level in three years.

The association also released a separate study by consultant Energy Ventures Analysis which said daily storage withdrawals this winter will increase 27pc, in part because of the call on US production for LNG exports and pipeline flows to Mexico.

Industrial demand, a consistent growth area in recent years, will rise by 3pc this winter, according to the study. It also expects a dip in US production of around 0.5 Bcf/d will be easily offset by available storage. Winter dry gas output will fall 1.3pc to just more than 11Tcf, according to Energy Ventures Analysis.

The consultant and NGSA concluded in their separate outlooks that the higher price of natural gas this winter will cause it lose up to 14pc of its market share for power generation. Overall gas burn for power is up by more than a third over the last six years.

Demand increases in the residential and commercial sectors this winter are not expected to be uniform in the lower 48 states. The National Oceanic and Atmospheric Administration suggests the southern tier of US states, which have limited winter space heating needs overall, will be warmer than normal.

The north central plains states will be colder than normal, which could boost prices for Canadian gas and supply at Chicago hubs and citygates. The remaining states are expected to have normal winter temperatures.