Market commentary
January 2009
Natural gas prices were widely spread during the month of December. The Sumas daily index traded from a low of $6.40 CDN/GJ on Dec 9th to a high of $12.25 CDN/GJ on Dec 17th. The daily index average for the month of December was $8.08 CDN/GJ.
The ongoing deterioration in the global economic outlook has deepened the softening of the North American natural gas market. Since last month, expectations for an economic recession have worsened, major gas-consuming industries facing sharp declines in their markets have cut gas consumption, and the outlook for electricity demand has also fallen. The recession is taking its toll on many gas-intensive industries—including petrochemicals, fertilizer, steel, and other automobile-related industries—where a number of firms have announced cutbacks and plant closings in recent weeks.
The rapid deterioration in the outlook is expected to reduce natural gas demand in early 2009. CERA (Cambridge Energy Research Associates) estimates that the US and Canadian economies will contract at an annual rate of 3.8% and 2.2%, respectively, in first quarter 2009, substantially dampening demand from the industrial and electric power sectors. As a result, economists expect gas demand from the industrial and electric power sectors to decline by about 2 billion cubic feet (Bcf) per day (or about 5%) in 2009. An additional 0.3 Bcf per day decline is expected from the residential and commercial sectors.
Lower oil prices are also beginning to threaten gas loads in dual-fuel facilities in some regions. On the supply side, drilling is down sharply, and is expected to continue into 2009. Prices at sub-USD$6 levels are below the full-cycle for many producing areas. So long as this remains the case, drilling activity will remain muted. However, through the natural decline of productive capacity as reserves are produced, the slowdown in drilling will correct the current condition of oversupply. This will tighten the market balance, putting upward pressure on prices, at about the same time that the economy should start to recover, which will add to gas price pressure from the demand side as well. By mid-2010 inventories will be running well below five-year average levels, and prices will begin to firm.
For the week ending December 12th, 2008, the Energy Information Administration (EIA) reported storage of 3,167 Bcf.. This represents a net decline of 124 Bcf from the previous week. Stocks were 169 Bcf less than last year at this time, though about on par with the 5-year average of 3,181 Bcf. At 3,167 Bcf, total working gas is within the 5-year historical range.
The graph below shows current and historical natural gas storage levels in the United States.
Please Note: All information contained herein is for informational purposes only and all price indications are as of the close of the previous business day and do not constitute a bid or offer to do business at these prices. This report contains information Terasen Gas obtained from outside sources that are believed to be reliable; however, Terasen Gas has not independently verified and makes no representation or warranty, express or implied, in respect thereof, and takes no responsibility for any errors and omissions which may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on the information, opinions, estimates, projections and any other materials contained herein. Users are advised to independently verify the information contained herein before making any business decision in reliance thereon. By the user continuing to use this website and the information contained herein, the user is deemed to have irrevocably waived all claims against Terasen Gas in respect of any errors and omissions contained therein.
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