Natural gas futures traded up for the third consecutive month gained almost 4% on strong physical winter seasonal demand settled at $4.180 for the month November 2010. The cooler temperature forecasts from the starting of the month kept momentum in natural gas prices as traders and spot buyers rush to lock profits before winter demand accelerate. The positive signal for natural gas prices came after EIA reported decline in last released weekly inventory report indicating strong physical demand which helped prices to continue the bull ride with strong spot prices.
Total Working gas in storage was 3837 Bcf as of Friday, November 19, 2010, according to EIA report. Stocks were 2 Bcf higher than last year at this time and 334 Bcf, 9.50% above the 5-year average of 3503 Bcf. In the East Region, stocks were 74 Bcf above the 5-year average while stocks in the producing region were 217 Bcf above the 5-year average of 1032 Bcf. The increased drilling activities on shale gas discoveries have increased production resulting in higher storage levels. At 3837 Bcf, total working gas is above the 5-year historical range. Working natural gas in storage set another new all-time record increasing to 3,843 Bcf as of Friday, November 12.
The total world natural gas consumption is expected to increase by 1.60% to 111.5 Tcf/day for 2010. Total natural gas consumption in US is expected to rise by 4% to 65 Bcf/d in 2010. The industrial and power generation sectors are the major contributor for the growth of natural gas consumption in 2010. Projected consumption of natural gas for power generation grows by nearly 1.3 Bcf/d to 20.2 Bcf/d in 2010 while the projected use of natural gas in the industrial sector also grows by 6.4%, from 16.8 Bcf/d in 2009 to 17.9 Bcf/d in 2010. The increased dependability on natural gas to reduce greenhouse gases compare to other alternatives will boost natural gas consumption resulting in increasing in prices.
EIA expects total marketed natural gas production to increase by 2.50% in 2010 and decline by 1.20% in 2011. Natural gas production grew steadily for the first half of the year on increased shale gas drilling activities. The total number of working natural gas rigs fell 4% to 955 from 992 in August 2010. A total of 7.9 Bcf of natural gas production was shut in because of hurricanes during June, July, and August.
Natural gas spot prices reported increase throughout the month November on cooler temperatures. Residential and commercial consumption increased approximately 7.6% in the last week of the month on strong heating space demand. About 52% of U.S. households use natural gas for heating. The whole sale natural gas prices at the bench mark Henry Hub delivery point rose more than 24% during the on higher demand to $4.17 from $3.35 of previous month. EIA expects the annual average natural gas Henry Hub spot price for 2011 to be $4.31 per Mcf reporting decline against prior forecast.
NYMEX Natural Gas Seasonally Map (Source: Bloomberg)
The above seasonality chart shows a significant price rise during the month of December. Natural gas prices at current point are in correction face on lack of significant winter demand and higher storage levels. However the below normal temperatures and snowfall in Europe will boost demand followed by US winter demand resulting in higher prices for December 2010. We expect natural gas prices to trade higher with gradual increase in spot demand and lower inventory levels. The industrial outlook seems positive and demand from industries will grow with gradual economic recovery. Buying on dips in natural gas with important resistance at $5.30 with support at $3.60 is recommended.
