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Factors affecting natural gas prices this month

September brings cooler temperatures, lower energy demands and rising natural gas inventories for greenhouse growers. Lisa Brodeur of 360 Energy takes a close look at the fundamentals that are playing into pricing this fall.

Weather is always a critical factor in natural gas pricing any time of the year, says Brodeur, as it dictates demand for differing heating and cooling loads.

“Warm weather this summer has assisted with limiting the injections that went into storage, but those kinds of temperatures will not be present in September to assist with demand. We will start seeing injections in line with or exceeding historical averages on a weekly basis now, as we saw this past week, when the historical average was 62 Bcf and we injected 66 Bcf.”

“At this time of year, hurricane activity in the Gulf of Mexico is also a pricing factor. This year, hurricane season is having relatively little impact on the natural gas market. Shut-ins over the past week capped out at 3.3 Bcf/day for only a few days. Total US production is around 70 Bcf/day, so a 4.5 per cent decline is not significant enough to impact prices over more than a couple of days.”

“Rig counts have been discussed often this year as we have seen a decrease of over 50 per cent across the US. Unfortunately, the majority of those rigs shutting down have been in conventional natural gas plays. The majority of US natural gas production increases this year were due to those conventional dry gas rigs switching to unconventional wet gas (shale gas plays) which have been producing more gas – faster than the conventional – making up for the sliding number of rigs in service.”

“The Loonie has been on quite the roller coaster ride this year so far and we anticipate that continuing. With the latest speech by Ben Bernanke, the US Federal Reserve Chair, there is the prospect of further quantitative easing in the United States. While many in the oil industry are cheering, as this will raise oil prices, those invested in the US dollar will not be so pleased. For growers in Canada however, it is also good news. Heavy investment in oil means less investment in the US Dollar which causes it to fall and the Canadian dollar rises relative to it. This in turns makes it cheaper to purchase natural gas, as it is priced and traded in US Dollars.”

“Lastly, there is still the potential for both US and Canadian natural gas storage to reach new all-time record highs – and the potential to reach their capacity. As we move closer to maximum capacity, anticipate a drop in prices. The next strong level of price support is at $2.20 US/MMBtu (around $1.70 CDN/GJ) and there is certainly the right mix of factors to help prices go there ahead of the winter heating season.”

“All in all, the market is poised for yet one more price drop before the snow flies,” says Brodeur. “ This price drop isn’t likely to bring prices below $2 like we saw earlier this year, but it certainly won’t reach any record-breaking prices on the high end either.”  

Lisa Brodeur is a Quality Assurance Supervisor at 360 Energy.