Natural gas prices fell to the a $2.567/MMBtu spot price low the first week of February 2015, the lowest spot price level the market has traded at since June 2012. Record high domestic production overshadowed higher storage withdrawals keeping prices under pressure.
There has been an increase in winter heating demand for natural gas with January 2015 demand of 99.6 Bcf (billion cubic feet) being the second largest over the past 10 years. January demand was 4 Bcf per day below January 2014 demand but 6 Bcf per day above the 5-year average.
February has also proven to be colder than normal with several winter snow events across the Northeastern U.S. with weather across the region being labeled the worst in two decades. Storage withdrawals during the last two weeks of February could be historically high if upcoming forecasts for below-normal temperatures are correct.
Even with the recent increase in winter heating demand for natural gas, current stocks of 2,268 Bcf are 542 Bcf or 31.4% above last year’s level and 9 Bcf or .5% below the 5-year average. With 7 weeks to go in the current withdrawal season, end of March stocks in 2015 will likely fall near the 10-year average of 1,565 Bcf. In 2014, stocks are the end of March reached an 11-year low of 822 Bcf.
Domestic production of natural gas which reached a record high of 77.3 Bcf in November 2014 according to Bentek and the EIA is expected to continue to increase in 2015 . Marketed production which averaged 74.3 Bcf per day in 2014 is forecast to increase to 77.2 Bcf per day in 2015, an increase of 2.8 Bcf per day or 3.7%.
Helping to offset the rise in production is an expected rise in consumption particularly from the power sector which should use more natural gas this summer over last. Spot prices which last summer were trading over $4.000/MMBtu have declined by 40-50% making natural gas much more competitive with coal for power generation.
Power sector demand is forecast by the EIA to rise by 2.6% in comparison to 2014 to 24.1 Bcf per day. Industrial demand is also forecast to increase by 5.6% with a slightly drop expected in residential and commercial demand.
With natural gas prices falling to a 2+ year low in early-February, many of the bearish factors including high storage and production could already have been factored into the market price. If weather-related demand in upcoming weeks remains high, the trend for the market could reverse back higher.
Seasonally, the shoulder months of March or April tend to be the time when the post-winter seasonal low is set. Once the market does bottom, a sideways to higher trend into the summer months of 2015 is expected.
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