Friday, March 20, 2020

EIA Natural Gas Weekly Update: The interplay of Oil and Gas Prices

From the Energy Information Administration:
In the News:
Crude oil market conditions contributing to higher natural gas prices at the Waha Hub
Although natural gas prices at the Waha natural gas trading hub in the Permian Basin, which includes West Texas and Southeast New Mexico, remain relatively low, they have been up more than $1 per million British thermal units ($/MMBtu) during the past two weeks because of global crude oil market conditions and declining crude oil prices. Price increases have affected both spot and forward values of Waha Hub natural gas. In recent years, the natural gas price at the Waha Hub has often been the lowest in North America for two reasons: hydrocarbon production in the Permian Basin has exceeded available takeaway pipeline capacity, and a significant amount of natural gas production in the Permian region is associated with oil production. As a result of this market imbalance, producers/marketers have had to compete to transport natural gas in a constrained network, and oil market fundamentals have had a pronounced effect on the Waha Hub price.

The Waha Hub spot natural gas price was negative as recently as March 3, but on March 11, it reached as high as $0.96/MMBtu. The forward or futures market for Waha Hub natural gas is up, too. Since February 26, when the Nymex natural gas futures contract at Henry Hub expired, the April–October summer strip for natural gas at the Waha Hub increased from -$0.05/MMBtu to $0.85/MMBtu on March 11, according to S&P Market Intelligence.

Spot natural gas prices at the Waha hub frequently traded negative in 2019 because of takeaway constraints in the Permian Basin. Since the 2.0 billion cubic feet per day (Bcf/d) Gulf Coast Express Pipeline was commissioned last year, Waha spot prices have gone negative less frequently. However, this additional takeaway capacity quickly became utilized, and in recent months, led to the Waha price differential to the Henry Hub widening again.

Crude oil prices have experienced significant volatility and price declines since the final week in February amid concerns over the economic effects of the 2019 novel coronavirus disease (COVID-19). More recently, markets fell after the Organization of the Petroleum Exporting Countries (OPEC) and partners failed to reach an agreement to continue crude oil production cuts. EIA’s Short-term Energy Outlook forecasts that low crude oil prices and the ongoing global pandemic are likely to reduce demand for both petroleum products and natural gas, thereby pushing prices and production levels down for both commodities in the coming months and into 2021. 
(For the week ending Wednesday, March 18, 2020)
  • Natural gas spot prices fell at most locations this report week (Wednesday, March 11, to Wednesday, March 18). The Henry Hub spot price fell from $1.92 per million British thermal units (MMBtu) last Wednesday to $1.65/MMBtu yesterday.
  • At the New York Mercantile Exchange (Nymex), the price of the April 2020 contract decreased 27¢, from $1.878/MMBtu last Wednesday to $1.604/MMBtu yesterday, the lowest front-month price since March 2016. The price of the 12-month strip averaging April 2020 through March 2021 futures contracts declined 15¢/MMBtu to $2.083/MMBtu.
  • The net withdrawal from working gas totaled 9 billion cubic feet (Bcf) for the week ending March 13. Working natural gas stocks totaled 2,034 Bcf, which is 76% more than the year-ago level and 16% more than the five-year (2015–19) average for this week.
  • The natural gas plant liquids (NGPL) composite price at Mont Belvieu, Texas, fell by 57¢/MMBtu, averaging $3.12/MMBtu for the week ending March 18. The prices of heavier NGPLs -- natural gasoline, butane, and isobutane -- fell, by 32%, 20%, and 16%, and lighter NGPLs ethane and propane fell by 11%, and 7%, respectively.
  • According to Baker Hughes, for the week ending Tuesday, March 10, the natural gas rig count decreased by 2 to 107. The number of oil-directed rigs rose by 1 to 683. The total rig count decreased by 1, and it now stands at 792.

Prices fall with warming temperatures. This report week (Wednesday, March 11, to Wednesday, March 18), the Henry Hub spot price fell 27¢ from $1.92/MMBtu last Wednesday to a low of $1.65/MMBtu yesterday. Temperatures across the Lower 48 states were warmer than normal across the eastern seaboard and Texas and cooler than normal in the Pacific Northwest. At the Chicago Citygate, the price decreased 30¢ from $1.79/MMBtu last Wednesday to $1.49/MMBtu yesterday....