Natural gas prices are on an upward trajectory that can likely be sustained into the winter and the new year, says a Calgary energy analyst.
Benchmark natural gas prices rose by 13% yesterday, as the NYMEX natural gas futures for October delivery closed at $3.30 per thousand cubic feet.
"It's recovering," said Peter Linder, noting he expects natural gas prices to continue rising for the remainder of this year and into 2010.
"I'm 99% certain the doomsday prophets are wrong," he said.
Several factors have been pushing natural gas from prices below $3 to current levels, Linder said.
One reason are that hedge funds, anticipating more stringent regulations of commodities markets in the U.S. are buying back their gas contracts.
Another reason is that traders are short-covering, which means they are speculating prices will rise.
But there are also more fundamental changes underway, Linder said: low drilling levels in North America, and the associated drop in production, are gradually having an impact.
The approach of the heating season is another factor.
"People are recognizing that fundamentally, gas can stay so low for only so long," Linder said.
A recovery of Alberta's natural gas sector, however, also hinges on whether the province will further tweak its royalty regime to spur drilling.
"I think all this pessimism within this province will dissipate next year, subject to our premier putting out a reasonable, proper fiscal regime," Linder said.
Alberta's government is currently examining how the province's competitiveness in terms of taxation, regulation and royalties compares to other provinces.
MARKUS.ERMISCH@SUNMEDIA.CA
And This:
Natural gas prices posted significant increases at all market locations since last Wednesday, September 2. The Henry Hub spot price increased 47 cents from the previous Wednesday’s price of $2.25 per MMBtu. However, intraweek trading was volatile, with natural gas prices falling below $2 per million Btu (MMBtu) at the Henry Hub on Friday, September 4 and rising to $2.72 per MMBtu yesterday.
At the New York Mercantile Exchange (NYMEX), the price of the near-month natural gas contract for delivery in October 2009 rose by 11.4 cents to $2.829 per MMBtu, an increase of about 4 percent from the previous week’s level of $2.715. While the price of the near-month contract also fell lower during the week before rebounding, price changes in the near-month contract during the report week were much less pronounced than they were in the spot market.
As of Friday, September 4, working natural gas in storage was 3,392 billion cubic feet (Bcf) following an implied net injection of 69 Bcf.
The West Texas Intermediate (WTI) crude oil contract ended trading at $71.27 per barrel yesterday, an increase of $3.24 or about 5 percent, from the previous Wednesday’s price of $68.03 per barrel. On a heat-content basis, the oil price settled yesterday at $12.29 per MMBtu.
The natural gas rotary rig count increased by 2 to 701 as of September 4, according to data Baker Hughes Incorporated released, marking the seventh consecutive weekly increase in the rig count. The total rig count, which includes oil and miscellaneous rigs, also rose by 10 to 1,009.
Despite increases during the week, natural gas prices were very volatile, reaching lows not seen in seven years. Natural gas prices varied significantly during the report week, with prices at the Henry Hub in Erath, Louisiana, falling below $2 for the first time in more than 7 years and its lowest level in nearly 8 years. On September 4, heading into the Labor Day weekend, prices at the Henry Hub closed at $1.84 per MMBtu, the lowest level since December 6, 2001.
Following the long weekend, the spot price at the Henry Hub rebounded by 59 cents or 32 percent, closing at $2.43 per MMBtu on Tuesday, September 8. By the close of the report week, prices gained another 29 cents, closing at $2.72 per MMBtu. Over the week, changes in prices in the lower 48 States ranged between 33 cents and 65 cents, with no locations showing a decrease. However, prices remain at historical lows. EIA’s Short-Term Energy Outlook projects an average September price of $2.35 per MMBtu at the Henry Hub, as moderate temperatures and robust supply push prices lower.
Prices throughout the country mirrored the pattern at the Henry Hub. Prices at most market locations fell below $2 per MMBtu on Friday, September 4. However, the exceptions to the below $2-price level occurred in the Northeast and Western United States. Natural gas at California locations generally traded above $2, with the Pacific Gas & Electric Citygate recording the highest price of $2.63 on Friday. Some trading locations in the Rocky Mountains - where prices generally are lower than other areas in the lower 48 States—remained above $2 per MMBtu on Friday. Prices generally rose in trading since Friday.
Despite large increases during the report week, prices remain at historical lows. During the past few weeks, prices at the Henry Hub have been below $3 per MMBtu, levels which have not been seen since August 2002. Prices at most trading points in the lower 48 States closed below $3 on Wednesday, with exceptions in the Northeast, Florida, and California. Prices are highest at the Florida Gas Transmission Citygate trading area, increasing by 65 cents to $3.35 per MMBtu during the report week, likely as a result of temperatures in the 80s.