gas on the dance floor

Boys - Lets Talk about Natural Gas

Consumption.
Total natural gas consumption is expected to increase by 2.2 percent in 2008 and by 0.9 percent in 2009 (Total U.S. Natural Gas Consumption Growth). Year-over-year increases in the residential, commercial, and electric power sectors have been largely weather-driven. In 2009, residential and commercial sector consumption is expected to be decline slightly while natural gas consumption for electricity generation is expected to increase by 2.5 percent. Growth in the industrial sector, which increased by 4.8 percent in the first quarter of 2008 compared with the corresponding period last year, seems to be tied to export strength and some resurgence in natural-gas-intensive industries, such as fertilizers. In annual terms, natural gas consumption in the industrial sector is expected to increase by 1.3 percent in 2008 and 0.4 percent in 2009

Inventories.
On May 30, 2008, working natural gas in storage was 1,806 Bcf (U.S. Working Natural Gas in Storage). Current inventories are now 1 Bcf below the 5-year average (2003-2007) and 326 Bcf below the level during the corresponding week last year.

Prices.
The Henry Hub spot price averaged $11.65 per Mcf in May, $1.16 per Mcf above the average spot price in April. High oil prices, low LNG imports, consumption growth, and a year-over-year decline in working inventories of 326 Bcf have all contributed to the recent strength in spot prices. These conditions are expected to continue and keep pressure on natural gas prices. On an annual basis, the Henry Hub spot price is expected to average a little over $11 per Mcf in 2008 and in 2009, an average increase of about $1.35 per Mcf from last month's forecast.
What Drives Prices ?


Short Term - Weather, the US economy

* Pick your scenario. If this winter is warmer than normal and the US economy continues at it's current pace, the US Dept of Energy predicts that gas prices will rise by about 5%. However, if this winter is colder than normal, the DOE says that consumers can expect double digit percentage increases.
* US Election - Obama proposes to increase capital gains tax and introduce a 'windfall profit tax'


Sen John Mcain on Tuesday, June 17th, 2008 in a speech on energy in Houston "He wants a windfall profits tax on oil, to go along with the new taxes he also plans for coal and natural gas," McCain said in a June 18, 2008, speech in Houston. "If the plan sounds familiar, it's because that was President Jimmy Carter's big idea too � and a lot of good it did us."



Long Term - Economic activity, demand/supply balance and the price of oil.

* Natural gas demand in North America is increasing at about 3 % per year whereas supply is increasing at about 1%
* Increasing economic activity, growth, new businesses and new homes increase gas use
* Production from many older gas wells is declining quite rapidly.
* More natural gas is being used for electricity generation. Any new electricity capacity brought on line right now is generated by natural gas, rather than oil, coal, water or nuclear.
* As the price of crude oil increases, some industries switch to natural gas. Many developed this dual fuel capability when gas prices skyrocketed in 2001.
* Prices are not expected to come down until new major gas pipelines are built connecting new gas fields in Alaska and the Northwest Territories. That is at least 6 years away.
* Liquified Natural Gas (LNG) will become a factor in North America, but many terminals and custom tankers will have to be built.