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Natural Gas - Current Market Conditions January-March 2012

In the January to March period, natural gas markets in Canada and the United States will primarily respond to seasonal heating requirements and consumption for power generation. Weather forecasts indicate warmer than normal weather in the large population centres in Ontario and the eastern U.S. and below normal temperatures in western Canada. The mild start to the winter has increased injections of natural gas into storage. Steady production levels of natural gas and ample volumes in storage will ensure stable sources of natural gas supply throughout the winter. The price of natural gas is expected to average between US$3.00-4.00/MMBtu. Price fluctuations, especially during periods of cold snaps, may nonetheless be anticipated. Click here for the forecast map.

Additional coal-to-gas substitution for power generation is not anticipated over the next several months, due to moderately higher prices of natural gas (typically seen during the winter heating season).

Figure 1 - Natural Gas Prices - Monthly Average

Source: NEB

Prices for natural gas have declined over the past few months averaging US$3.35 per MMBtu at Henry Hub. Prices at the end of 2011 are lower than end-2010 prices by US$0.50. With the arrival of cold weather in December, natural gas prices rose to US$ 3.50/MMBtu. Futures prices suggest little change over the first quarter.

As at the last week of November, natural gas in storage stands at 4.5 trillion cubic feet (Tcf), comparable to last year’s levels at this time. Between Canada and the US, natural gas in storage reached a new record in 2011, when more than 4.5 Tcf of natural gas in storage was recorded during the third week of November. This year-over-year increase amounted to 26 billion cubic feet (Bcf) and was recorded at the same week as last year.

Total marketable gas production from Canada and the U.S. has surpassed recent highs and will likely average 77 Bcf/d over the coming months. While Canadian gas production has remained relatively stable as the amount of rigs drilling for natural gas in November was similar to last year; American production has been increasing despite an 11 per cent decline in year-over-year November gas-drilling activity. However, an even greater decline in U.S. gas drilling has begun in early December, down 16 per cent from December of 2010, and it remains uncertain whether U.S. production will continue to increase at its current rate.

Another source of natural gas supply will come from imports of LNG. Over the next three months projected imports of LNG to Canada and the US will average 1 Bcf/d, but send-outs from import terminals may be as high as 1.5 Bcf/d during periods of cold weather. Last year at this time, New Brunswick’s Canaport facility saw utilization rates of almost 80 per cent as almost 0.8 Bcf/d of natural gas was transported to markets in the US Northeast. Current utilization is closer to 30 per cent. Overall imports of LNG into North America for 2012 are projected to be five per cent below last year’s levels, as high continental production, strong storage levels and low prices in relation to markets in Europe and Asia continue to discourage imports of LNG.

Price Pressures

Natural Gas

• Episodes of cold weather (upward price pressure)
  Increased demand for space heating.
• Additional coal-to-gas substitution in power generation (upward price pressure)
  If natural gas prices are sufficiently competitive to displace more coal as fuel for power generation; in some cases, gas units are moving from peaking service to base load generation.
• High levels of natural gas in storage (downward price pressure)
• Steady production levels of natural (downward price pressure)
• Continued mild winter weather (downward price pressure)
  Reduced demand for space heating

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Date Modified:

2012-01-04