Natural gas outlook: Warmest year on record limits consumption
According to a recent report by the National Oceanic and Atmospheric Administration (NOAA), 2012 was the warmest year in the contiguous United States since recordkeeping began in 1895. The average temperature was 55.3 degrees, 3.2 degrees greater than the 20th century average and 1.0 degree greater than the previous record in 1998. The warm year was the result of the combination of a mild winter and a hot summer, and warmer than normal temperatures in every state, not just in isolated regions of the country.
The temperatures in 2012 affected natural gas consumption. Even with lower average natural gas prices, residential and commercial consumption in 2012 was lower than any of the previous 5 years with lower demand for heating. In the electric power sector, weather, relatively low natural gas prices, and a structural shift toward generating more electricity from natural gas-fired power plants contributed to increased natural gas consumption, which started early in 2012. Industrial consumption, which responds both to the economic environment and to weather, was slightly higher in 2012 than in each of the last five years.
Natural gas prices are up at most market locations, increasing most significantly in the Northeast. Henry Hub increased from $3.14 per MMBtu last Wednesday to $3.43 yesterday, an increase of 29 cents per MMBtu, or 9 percent. Most trading points increased between 20 and 30 cents per MMBtu week-on-week, with the notable exception of the Northeast. Algonquin Citygate, serving Boston, jumped by $4.57 per MMBtu, an increase of 104 percent over prices at the start of the report period. Transco Zone 6 NY, serving New York City, saw a price increase of $2.59 per MMbtu, up 78 percent Wednesday to Wednesday. Temperatures in the Northeast fell precipitously Tuesday and yesterday, which were the days of the largest price increases. The Midcontinent and Northwest faced low temperatures across the whole report period.
The Nymex futures price rose week-on-week. The Nymex price rose 32 cents per MMBtu over the report period, from $3.113 per MMBtu last Wednesday to $3.435 per MMBtu yesterday. The near-month Nymex price closed just one half cent per MMBtu above the Henry Hub price yesterday. The 12-Month Strip (average of February 2013 to January 2014 contracts) also increased, rising 25 cents per MMBtu over the report period and ending the week at $3.654 per MMBtu. The 24-Month Strip is also trading below $4.00 per MMBtu, closing at $3.864 yesterday.