Yesterday, natural gas spot price (Henry Hub) rose precipitately by nearly 5%, while April delivery future prices declined by 0.45%, resulting in the premium of future prices over spot reachinf four cents/MMbtu a drop from 27 cents on Friday, March 25th.
Let’s examine the natural gas market for March 28th:
Japan’s energy sources
Japan looks towards importing energy sources to meet its energy needs that were diminished due the tsunami attack; this recent turmoil caused a decline in Japan’s nuclear power because of the damage the earthquake and tsunami averted the nuclear power facilities (see here for more on the subject).
Japan is the world’s biggest importer of liquefied natural gas; many of its natural gas fields and import terminals are at the west coast, and weren’t harmed in the recent natural disaster; this will likely to raise the speculations that Japan will seek to replace the nuclear power it lost in the earthquakes with imported liquefied natural gas.
The ratio of WTI oil and natural gas spot price (Henry Hub) is still high compare to the beginning of the year. This might be another factor that will push Japan to use (where possible) natural gas over crude oil.
There are already reports that the average cost of shipping liquefied natural gas may rise by 67%, from an average rate of 60,000$ during last quarter to 100,000$ in this quarter. Partly because of Japan’s growing need in importing LNG.
This might explain the rise in natural gas prices around the time of the tsunami attack in Japan (see chart below), which may have drove speculation money into the natural gas market (but remember that this is only a hypothesis and that correlation doesn’t mean causation).
Natural gas prices March 2011 – update
The weather forecasts still predict cold weather throughout the US, which might keep the consumption of natural gas high. According to the recent forecasts, there will be severe rain showers and thunderstorms in the South and snowfalls in Midwest; in the Northeast the weather is expected to be chilly but dry with temperatures reaching 5 to 15 degrees below the average temperatures over the entire region.
This news might further pressure natural gas spot price to increase as the day will progress, but at a much a moderate rate than yesterday.
Future and spot prices
The contango (the premium of future prices of Henry Hub over the natural gas spot price) reached on Monday, March 28th 0.04$/MMbtu. As we are exiting the winter and nearing the time of maturity of future April delivery, the contango should drop and switch to backwardation as it did yesterday.
During the month of March 2011, up to March 28th, Henry Hub spot and future prices rose by 10.4% and 13.1%, respectively.
Current Natural gas price
European market currently shows falls in natural gas future price:
The Nymex Henry Hub natural gas price, short term futures (April 2011 delivery) is traded at 4.31 USD / MMbtu, a 0.07 USD decrease or 1.58%, as of 15.16*.
Natural gas spot price Outlook:
I still speculate that natural gas spot prices might rise but at a moderate rate and future prices (April delivery) will drop as we are nearing its maturity.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
9.30 – Great Britain Balance of Payments
15.30 – EIA report about Crude oil inventories
For further reading (on this site):
- Natural gas market bounces back | EIA review, Mar 25
- Natural gas prices outlook for March 2011
- Weekly outlook for 21-25 March
- Natural gas prices shifted direction to a rise – Weekly recap 21-25 March