BP's natural gas liquids extraction facility at Fort Saskatchewan, near Edmonton.
Photograph by: Dean Bicknell, Herald Archive
Posted on 04/08/2009 7:17:53 AM PDT by thackney
A supply glut dragged natural gas prices to a six-year low Tuesday, leading to predictions of more layoffs and capital spending cuts in the Alberta oilpatch with little relief expected until next fall.
The New York near-month spot price for natural gas fell 17 cents, or 4.6 per cent, to settle at $3.562 per million British thermal units on the New York Mercantile Exchange, the lowest close since Sept. 25, 2002, when the futures settled at $3.494.
Gas has declined 37 per cent this year and is down 74 per cent since reaching a 2008 high of $13.694 per mmBtu on July 2.
Calgary analyst John Tasdemir of Tristone Capital Corp. said he wouldn’t be surprised to see the price briefly slip below $3 US, although he expects it to average $4.25 this year after posting an average of $4.60 in the first quarter.
“I think you could see a $2 handle on it,” he said. “I don’t think it necessarily stays there very long . . . we’re not forecasting it averages that level for a whole quarter.”
He said producers are already shutting in gas wells to avoid selling their production at such low prices and that trend will continue. The market has to overcome a storage surplus of some 400 billion cubic feet, a third more than a year ago, before prices can return to normal.
“I think by next fall, the 2010 year, as far as natural gas prices go, it will look a little bit firmer.”
A quarterly survey of 25 energy analysts by wire news service Reuters on Tuesday showed the average 2009 forecast for U.S. natural gas prices is 21 per cent lower than three months ago, due to low demand growth from a weak North American economy.
The experts predict spot prices at Henry Hub, the benchmark U.S. supply point in Louisiana, to average $4.67 US per mmBtu, down from the earlier $5.90 forecast and about half of 2008’s record high average of $8.93.
Meanwhile, a U.S. government report due Thursday will probably show a supply increase of 12 billion cubic feet per day, Bloomberg reported, citing the median of eight analyst estimates. Supplies in last week’s report were 22 per cent above the five-year average as storage companies began to rebuild inventories to meet demand next winter.
Economist Ralph Glass of AJM Petroleum Consultants in Calgary said in a report Tuesday that the poor prices and resulting precipitous drop in energy investment since last fall will culminate in a significant bounce in both prices and oilpatch activity by the start of the next winter drilling season.
“The forecast assumption I’m making is we’re going to see potentially even lower prices over the summer,” he said. “The summer tends to be the refill season for storage levels.
“But I’m also anticipating come September, October, we’ll start to see the effects of the decline in drilling, so that you’re going to see a significant drop off in production.”
Lower output of natural gas will allow the surplus inventory to clear and help suport higher prices for natural gas. AJM is expecting a price average of $4.50 US per thousand cubic feet (roughly equal to an mmBtu) in 2009, rising to $6.65 in 2010 and averaging $9 by 2016.
The Canadian priced AECO forecast is expected to average $4.50 per mcf in 2009, rising to $8.50 per cf in 2016, corresponding with the expected recovery of the Canadian dollar over the same period.
The consulting firm is expecting the oil price to climb and that, too, will boost the gas price, Glass said, providing the U.S. dollar doesn’t significantly strengthen. AJM forecasts crude oil prices of $55 US per barrel for 2009, rising to $70 in 2010, then reaching $100 by 2016.
Reduced drilling over the past two years in Canada has caused about one billion cubic feet per day of production to fall off the market, Glass said.
Meanwhile, in the United States, gas supply levels greatly increased in 2008 because of of drilling in shale gas plays but the rig count has fallen dramatically since then.
“The shale gas wells come on a very high rates but they drop off very quickly so you have to keep drilling and drilling,” he said.
The global rig count fell for five straight months, declining 7.4 per cent in February to the lowest since April 2006, according to data published by Baker Hughes Inc. Operating rigs decreased 28 per cent from 3,557 in September, the biggest drop since the last recession, in 2001 and 2002.
Tristone’s Tasdemir predicted two weeks ago only 10,500 wells would be drilled in Western Canada this year, down 24 per cent from the previous forecast, with Alberta producing 6,500 of the wells.
The Canadian Association of Oilwell Drilling Contractors revised its projection at the end of February to 11,176 wells in Western Canada from 14,325 predicted in October.
Brokerage Peters & Co. has forecast 10,000 wells this year.
Why is Propane so expensive? It is ridiculous.
Propane is a different market than natural gas (methane).
Propane/Propylene has mostly different markets than methane. Home heating is only a portion.
It also makes quite a difference where you are located.
Weekly Propane Prices (October - March)
http://tonto.eia.doe.gov/dnav/pet/pet_pri_wfr_a_EPLLPA_PRS_cpgal_w.htm
Natural Gas Futures Contract 1
http://tonto.eia.doe.gov/dnav/ng/hist/rngc1d.htm
What about the Pickens Plan? Isn’t it going to save the world? [/sarcasm]
I am trying to figure out how the price of gas is low enough to be sending folks home.
Propane will follow gasoline prices more or less. The reason:....If gas gets too high, it becomes profitable to switch to propane for auto travel. It is cheap and easy to switch to propane for your car or truck. “They” don’t want you to have an alternative to gasoline.
I am trying to figure out how the price of gas is low enough to be sending folks home.
- - - - -
Last Summer the average price was above $11 for months.
U.S. Natural Gas Pipeline Imports Price
http://tonto.eia.doe.gov/dnav/ng/hist/n9102us3m.htm
The spot price is now about $3.50
Natural Gas Weekly Update
http://tonto.eia.doe.gov/oog/info/ngw/ngupdate.asp
http://online.wsj.com/mdc/public/page/2_3023-cashprices.html?mod=mdc_cmd_pglnk
Funny. Our gas bill hasn’t gone down... So if the sellers are getting the same price from consumers... something smells.
Many distribution companies likely locked in their purchases to suppliers to match the customers anticipated need.
Manufacturing on the Continent is way down. NG is a main resource for countless industries and products.
This is like the economic Canary-In-A-Coal-Mine, as it were.
This mean spring is officially here?
Why is it still snowing?
Globull warming.
Around here, the gas service company lots are filling up with trailers, rigs and other idle equipment. Lots of people laid off. It’s sad.
I’ve been through bust and boom before but this was a fast fall to bust...
Hmmm, this didn’t prevent my natural gas utility raising the rates 30% last fall. Prices were in decline then as well. B@stards.
How much did the prices go up before that?
They’ve more than doubled in the last 10 years.
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