Brrrr…How High Can Natural Gas Rise on Cold U.S. Weather?

With below-normal temperatures forecast for the Northeast and Midwest for Thanksgiving Week, folks will be cranking up the heat more than usual for their annual festivities. With that anticipated rising demand, the January Henry Hub natural gas contract, the largest by volume, is riding a three-day win streak while the front-month December contract tests multi-month resistance levels around $3.8-$3.9 per million Btu.

After decisively breaking below $4 in June, the front-month contract has tested and failed to rise back above $3.9 three times. Looking at the chart below, natural gas:

  • Hit its usual summer peak in mid-July at $3.835 and then sold off
  • Failed to break through its July high in mid-September
  • Touched a multi-month high of $3.869 in mid-October but missed printing $3.9 for the third time.
Natural Gas: Is It Peaking or Will It Break Out?

Natural Gas: Is It Peaking or Will It Break Out? (Click to Enlarge)

Will natural gas finally breakthrough for a run at $4?

From a fundamental standpoint, the bullish arguments are in place. With colder-than-normal weather heading into December, traders may be anticipating an overall cold U.S. winter and are bidding up prices. According to the United States Energy Information Administration, about half of U.S. households use gas for heating.

On the supply side, oilfield services company, Baker Hughes, believes the total U.S. natural gas rig count will decrease 10 percent to 340 total in the fourth quarter this year. Longer term, Baker Hughes counted more than 900 rigs in September 2011 but that number has dwindled with falling prices.

Should natural gas fail to breakout, the January contract may provide a nice short-term sell opportunity especially if the weather starts warming up. Otherwise, the bulls may find themselves with a very happy holiday season.

For more… Liquefied Natural Gas: A Case for Rising Prices


Liquefied Natural Gas: A Case for Rising Prices

Domestic energy companies here in the United States have been calling liquefied natural gas the “future” to appease the world’s insatiable demand for energy. And they say that for good reason—we have a lot of it. Thanks to large shale natural gas and oil reserves the nation aggressively exploits, the U.S. is expected to be the world’s largest producer of petroleum and natural gas hydrocarbons in 2013, beating out perennial leaders Saudi Arabia and Russia.

According to the United States Energy Information Administration:

“Since 2008, U.S. petroleum production has increased 7 quadrillion Btu, with dramatic growth in Texas and North Dakota. Natural gas production has increased by 3 quadrillion Btu over the same period, with much of this growth coming from the eastern United States. Russia and Saudi Arabia each increased their combined hydrocarbon output by about 1 quadrillion Btu over the past five years.”

Thanks to this increase, domestic spot natural gas prices have diverged from the rest of the globe. The states now enjoy some of the cheapest natural gas in the world, as illustrated by this chart from Timera Energy:

Global Spot NG prices

Doing some simple math, the motivation for liquefied natural gas is clear. Producers are itching to build as much LNG export infrastructure as quickly as possible to take advantage of global price discrepancies.

Will Exporting Natural Gas Raise Domestic Prices?  

My home state of Oregon has emerged as an LNG battleground, pitting concerned citizens and environmentalists against the energy industry. With prices in U.S. dollars four times greater in East Asia compared to the U.S., the stakes are high. LNG export terminals along the Oregon Coast will generate tremendous profits for the energy industry—if they can get them built. Last month, county commissioners in Clatsop County Oregon unanimously rejected a proposal to build a LNG facility and pipeline along the coast. Local citizens are unconvinced that the proposed economic benefits of these facilities outlined by Oregon LNG outweigh the potential environmental and socioeconomic consequences.

Frankly, they have a point. And it is not just environmental.

Similar to how rising oil prices can hurt the economy, exporting will likely increase natural gas prices in the U.S. and serve as a tax on Americans who consume it in their respective homes and businesses. Exporting will benefit the lucky few who own land rich in gas shale or those who work/own one of the energy companies that handle it.

Hedge against Rising Prices

The cynic in me believes that energy companies will win out. Oregon LNG is appealing to the federal government to build on the Oregon Coast, arguing the local government does not have the authority to decide. Regardless of the outcome in Oregon, other proposed LNG facilities will likely drain North America of its natural gas in the years ahead. Time will tell if prices rise as the country looks to export more shale gas.