Natural Gas Prices Remain Bullish Amid Heat and Coal Delivery Problems

Strategic Insights -

Lingering heat in the southern United States, driven by high electricity demand, has tightened natural gas supplies in other regions, leading to increased prices in the Midwest. The American Gas Association reported that despite mild weather in the Northeast, storage capacity holders will struggle to meet the 96 Bcf injection target, potentially driving prices up to $2.40s or low $2.50s/MMBtu in South Louisiana and Texas. Ongoing coal delivery problems may also contribute to bullish sentiment, tempering bearishness related to high storage levels.

Key Takeaways:

  • Natural gas prices are expected to remain high due to lingering heat in the southern United States, which has driven up gas demand for electricity generation.
  • Texas and Southwest utilities have been buying more gas as a result of extreme heat and coal delivery problems, leading to increased prices in the Midwest.
  • Storage capacity holders will struggle to meet the 96 Bcf injection target, potentially driving prices up to $2.40s or low $2.50s/MMBtu in South Louisiana and Texas.
  • Ongoing coal delivery problems may also contribute to bullish sentiment, tempering bearishness related to high storage levels.
  • The American Gas Association reported that during the week ended June 26, an injection of 72 Bcf, or 10.3 Bcfd, into U.S. underground storage facilities brought total stocks to 2,011 Bcf, or 63% full.
  • At this level, stocks are now 452 Bcf higher than at the same time last year.
  • Gas prices during July's pipeline nomination period came in about 30 [cts.] higher than during the June bid week and roughly 20 [cts.] higher than the July 1997 bid week, mainly due to air-conditioning demand in the South.

Statistics:

  • Prices for immediate delivery at the Henry Hub in Louisiana rose to just under $2.30/MMBtu in South Texas and the mid-$2.30s in Louisiana.
  • The July natural gas futures contract on the New York Mercantile Exchange closed at $2.358/MMBtu, up 34 [cts.] from June's $2.017/MMBtu close and up 21 [cts.] from July 1997's $2.145/MMBtu close.
  • Storage levels are now 63% full, with 2,011 Bcf in storage, compared to 1,559 Bcf at the same time last year.
  • The injection of 72 Bcf, or 10.3 Bcfd, into U.S. underground storage facilities during the week ended June 26 is 452 Bcf higher than at the same time last year.

Sources:

  • The Oil Daily
  • American Gas Association
  • Weather Services Corp.
  • New York Mercantile Exchange
  • Axxis Petroleum
  • The Oil Daily (July 1, 1998)