The U.S. Energy Information Administration reminded us this month that the world's first purpose-built, ocean-going LNG carrier, the Methane Princess, was placed into service 50 years ago in June 1964. That ship, and her sister vessel, the Methane Progress, traveled primarily between Algeria and the UK. Today, there are 357 such ships generally averaging five times the capacity of the original transporter.
Domestic production remains strong and growing, and storage injections' aggressive poise has coincided with a slight softening of prices. Following one of the coldest winters in decades and the strongest demand pull ever, the physical market appears to be adjusting accordingly.
Topics covered in this week's report include: Reported Prices, Weather, Working Gas in Underground Storage, Natural Gas Production, Shale Gas, Rig Counts, Pipeline Imports and Exports, and LNG Markets.
Reported Prices – global oil prices are on the rise as insurgents in Iraq have threatened the
nation's stability and petroleum supplies. Reports indicate that oil majors including
ExxonMobil and BP have evacuated staff from the country. Brent crude has advanced to
nearly $114 per barrel and its spread to West Texas Intermediate, at $106, has widened during the past two weeks as fear and uncertainty shape market expectations. At the same time, domestic natural gas prices have fallen back to about $4.55 per MMBtu following the seventh straight week of triple digit underground storage injections in the United States.
Weather – by mid-June the country had been warmer than normal for six of eight weeks beginning in early May. However, more cooling degree days than normal do not generally result in significant volumes of gas to power generation in May and early June. That changes as we approach the Fourth of July and into August and September. Those summertime temperatures along with growing domestic production will influence the sustainability of strong injections into underground storage this summer.
Essentially, the weather (and more specifically temperature influences) impact the physical market and commodity pricing up to 10 months per year, now. So-called shoulder periods have become of lesser duration. With that said; temperatures in absolute terms have been relatively mild this spring and early summer even though the count of cooling degree days points to a 17 percent warmer than normal start to the season. Regionally, the Mid-Atlantic region has been cooler than normal while the rest of the country has been warmer.
Working Gas in Underground Storage – natural gas volumes directed toward storage have been consistently stronger than average every week since mid-April and represents some of the strongest levels of injection since 2003, which coincidentally or not is the last time storage stocks fell below 1,000 Bcf during the withdrawal season. Storage injections have been in the triple digits for 7 weeks straight. In fact, from May onward, injections have averaged 15.1 Bcf per day, almost 3 Bcf per day more than the past-five-year daily average injection for the same period. Volumes to underground storage were strong once again following a 110 Bcf injection for the week ending June 20. At 1,829 Bcf working gas in storage, inventories are still 27.4 percent behind the 5-year average, but closing.
Natural Gas Production – domestic dry natural gas production continues its relentless movement upward in June 2014 as daily lower-48 states volumes grew to 68 Bcf per day – a strong 3.4 Bcf per day higher than in June 2013. Year-to-date volumes are 2.3 Bcf per day higher in 2014 than 2013.
Shale Gas – the rise of shale gas production in the Northeast has caused a shift in how companies and customers consider using existing pipeline and production assets in place. The Rockies Express pipeline was originally designed as a west-to-east transportation project. As production in the Marcellus and then Utica have continued to rise, volumes originally destined for the east have been backed out due to lower cost and more local supply. This has created a need for new types of services, including east-to-west transportation. For example, the Seneca lateral on REX will begin that transformation in southwest Ohio and flow gas north from the Marketwest Seneca natural gas processing plant to the REX mainline. Upon completion of the REX Zone 3 East-to-West project, REX will have the capacity to ship 1.8 Bcf per day of gas both east and west in a large portion of its Zone 3.
Rig Counts – US rotary rigs in operation totaled 1,858 for the week ending June 20. This represents a 99 rig increase from one year prior, a jump of 5.6 percent. The oil to gas split remains largely unchanged for the past 8 weeks. Currently 83 percent of rigs in operation are directed toward oil; the 17 percent remainder designated as gas.
Pipeline Imports and Exports – pipeline imports from Canada picked up in mid-June as demand for gas into storage came head-to-head with short-term increases in natural gas to power generation facilities. Riding along at about 4.5 Bcf per day, imports from Canada jumped 1 Bcf or more per day to balance market requirements. They have average 4.7 Bcf per day for June. As pipeline imports fluctuate, pipeline exports to Mexico have gained strength. At 2.3 Bcf per day in June, Mexican exports are split between the Southwest at an average 0.5 Bcf per day and Texas at 1.8 Bcf per day.
LNG Markets – the Federal Energy Regulatory Commission (FERC) granted approval to Sempra's Cameron LNG project in Hackberry, Louisiana, marking the second time FERC has approved an LNG export project. The $10 billion project has already received conditional approval for exports from the Department of Energy, making Cameron LNG the second export project alongside Cheniere's Sabine Pass that have received both FERC and DOE approval. Cameron LNG will be designed with 1.7 Bcf per day liquefaction capacity via three trains. Construction is slated to begin later this year and start-up of the facility is not expected until 2017, with full commercial operation expected in 2019. Meanwhile on another project, FERC has found that no significant environmental concerns exist regarding Cheniere Energy's Corpus Christi project and the Freeport LNG proposal, if they are constructed and operated in compliance with existing laws and regulations. The final Environmental Impact Statement (EIS) for the Corpus Christi project is expected in October 2014. The Freeport approval is the final. Turning the page to LNG imports, sendout from LNG import terminals has been about 100
MMcf per day this June, a decline of 67 percent from June 2013.
Natural Gas Market Summary – the Energy Information Administration reminded us this month that the world's first purpose built ocean going LNG carrier, the Methane Princess, was placed into service 50 years ago in June 1964. That ship (and her sister vessel the Methane Progress) traveled primarily between Algeria and the UK. Today there are 357 such ships generally averaging 5 times the capacity of the original transporter. Strong domestic production remains strong and growing, and storage injections' aggressive poise has coincided with a slight softening of prices. Following one of the coldest winters in decades and the strongest demand pull ever, the physical market appears to be adjusting accordingly.