Natural Gas Prices Remain Low Despite Colonial Pipeline Fire and Flood

Strategic Insights -

Natural gas prices are expected to remain low throughout 1994, even during the winter months, according to industry officials. The fire and flooding of Colonial Pipeline's gas pipeline in southeast Texas will not affect gas prices, which remained stable after the incident. The November 1994 futures contracts were priced at $1.597/MMBtu at market close on Friday, October 21. Market analysts say that the horizon for a sustainable recovery in gas prices seems to be receding beyond the winter heating season.

Key Takeaways:

  • Gas prices will stay low through January or February due to the floods not impacting natural gas production, which is mostly offshore.
  • The November futures contract reached new lows of $1.585/MMBtu on Wednesday and $1.557 on Thursday before regaining 4* to close at $1.597/MMBtu on Friday.
  • Short covering sparked the 4* rise in the contract Friday, according to a New York-based trader.
  • Gas prices probably will not reach levels originally anticipated for this winter, with spot prices at [Louisiana's] Henry Hub averaging about $1.60/MMBtu in the fourth quarter, down from about $2.02 in the 1993 fourth quarter.
  • John E. Olson of Merrill Lynch & Co. stated that "once the weather bites, you should see a turnaround in gas prices."
  • An arctic blast this winter could quickly scatter the pessimistic psychology of the market, but assuming normal winter temperatures, natural gas futures for December and January should remain around $2, according to Michaell Taylor of Houston-based consulting firm Jofree Corp.
  • The call on U.S. gas production fell about 4 Bcfd this summer, according to analysts at NatWest Securities Corp., citing several factors including mild weather, ample supplies of nuclear power, and higher Canadian supplies.

Statistics:

  • November 1994 futures contracts were priced at $1.597/MMBtu at market close on Friday, October 21.
  • The November futures contract reached new lows of $1.585/MMBtu on Wednesday and $1.557 on Thursday.
  • Gas prices will stay low through January or February, with spot prices at [Louisiana's] Henry Hub averaging about $1.60/MMBtu in the fourth quarter.
  • The call on U.S. gas production fell about 4 Bcfd this summer, according to analysts at NatWest Securities Corp.
  • Levels of working gas in storage could approach 3.1 Tcf at the start of this year's winter heating season, compared with 2.998 Tcf last year, according to the American Gas Association.

Sources:

  • "WASHINGTON -- With natural gas futures trading at life-of-contract lows last week, the horizon for a sustainable recovery in gas prices seemed to be receding beyond the winter heating season, market analysts say." (Source: Reuters)
  • "The floods are not having any impact on natural gas production because most of it is offshore," a trader for a major Houston pipeline said. (Source: Reuters)
  • John E. Olson of Merrill Lynch & Co. stated that "once the weather bites, you should see a turnaround in gas prices." (Source: Bloomberg)
  • Michaell Taylor of Houston-based consulting firm Jofree Corp. stated that natural gas futures for December and January should remain around $2, assuming normal winter temperatures. (Source: Bloomberg)
  • Levels of working gas in storage could approach 3.1 Tcf at the start of this year's winter heating season, compared with 2.998 Tcf last year, according to the American Gas Association. (Source: AGA)