Let’s examine the US natural gas market and the effect the recent news from Libya and Japan might affect the Henry Hub natural gas spot price and future price as of March 16th:
Gas prices March 2011
According to weather forecasts, the rain and thunder storms shifts and is expected to reach the and northeast of the US.
This storm might further raise the consumption of natural gas in this region, despite the drop in consumption during last week as reported by the recent EIA report on natural gas market in the US.
Future and spot prices
The premium of the future prices of Henry Hub over the natural gas spot price rose as of yesterday March 15th to reach 0.14$/MMbtu (Contango). Mainly because spot prices fell while future prices moderately rose.
During the month of March, up to March 15th, spot and future prices of Henry Hub fell by 3.3% and 2.4%, respectively. This suggests, as expected, that there is an ongoing downward trend in natural gas prices during March.
Libyan drop in gas exports
Qaddafi continues his assault on the rebels with air strikes. Now, it’s reported that he set his goal on Benghazi as his forces progressed into the gateway city of Ajdabiya, 100 miles from the rebel capital.
As of January 2011, Libya has 54.7 Tcf natural gas reserves, the fourth largest in Africa. In 2009, Libya exported 349 Bcf of natural gas to Europe.
Due to the riots in Libya, its natural gas output keeps on dropping: there is an estimated of 16.5 Bcf/d natural gas that wasn’t delivered since February 23rd to Italy – the largest importer of natural gas from Libya.
EIA energy outlook
The EIA published its updated report on energy outlook for 2011.
According to the report, natural gas inventories will remain high; the estimated average natural gas spot price (Henry Hub) will be $4.10 MMBtu during 2011, which is $0.29 MMBtu lower than the 2010; finally the EIA consider that the natural gas market will begin to tighten only in 2012, causing the Henry Hub spot price to increase.
Current Natural gas price
Europe markets currently show rises in natural gas future price:
The Nymex Henry Hub natural gas price, short term futures (April 2011 delivery) is traded at 3.98 USD / MMbtu, a 0.04 USD rise or 0.94%, as of 10.06*.
Natural gas spot price Outlook:
As the cold weather will continue to dwell in many parts of the US, it will probably pressure natural gas spot price to rise, for a few days over and close the gap from future prices (April delivery) as it happened during last week. This affect, however, won’t be long lasting as the winter is slowly departing the US, and with it the prices of natural gas will likely to continue to decline.
Oil prices are still high and nearing the 100$/b due to the Middle East and North Africa turmoil and the Japanese tsunami attack ramifications. Japan will need look to alternative energy sources as 11 of its nuclear power reactors were damaged along with five of its oil refineries.
Japan is the world third in usage of nuclear energy and has 53 reactors that supply 34.5% of its energy usage.
There are rising speculations that since oil prices are high and the US has natural gas, Japan might look to purchase liquefied natural gas from the US. This might explain the recent hike in future prices of Henry Hub yesterday.
I speculate that natural gas prices might further rise due to the expected storm in the Northeast of the US and current speculation around Japan’s need for energy; Let me clear it’s a fact that Japan needs to buy energy commodities, it’s speculation, however, that Japan will necessarily purchase liquefied natural gas from the US (speculation but certainly plausible).
However as the week will progress, we will probably see natural gas spot prices continue to slowly descend.
Here is a reminder of the top news that are scheduled for today and tomorrow that might after the natural gas markets (all times GMT):
10:00AM– Euro Area core monthly inflation (February)
16.30PM – EIA report about Crude oil inventories
13.30PM – Department of Labor report – US unemployment claims
13.30PM – Report on US CPI
15.30PM – EIA report about Natural gas storage
For further reading (on this site):
- Natural gas prices outlook for March 2011
- Weekly outlook for 16-18 March
- Natural gas prices zigzagged all week – Weekly recap 7-11 March
- Natural gas market continues to cool down | EIA review, Mar 11