On one side, Gulf of Mexico shut-ins are returning faster than expected, and imports of Canadian gas have increased; on the other, the colder weather has arrived and LNG is going to Europe instead of the United States. These are the factors in play and behind the current high natural gas prices, FERC staff told the commissioners in a natural gas market update at Thursday's regular meeting.
A relatively warm November has been followed by deep freeze December and prices have responded accordingly, according to Steve Harvey with the Office of Market Oversight and Investigation (OMOI), who said prices are essentially at the level they were just after the three hurricanes in the Gulf of Mexico last summer.
Shut-in Gulf gas is only at 2.3 Bcf/d, rather than the 3 Bcf/d which had been projected shortly after the storms, and rig counts are up. In the last few weeks Canadian imports have surged by 2 Bcf/d, with 1 Bcf/d of the total going to the East and Midwest. Also exports to Mexico are down by 300 MMcf/d.
On the other side LNG imports are below expectations, running at about 1.5 Bcf/d, rather than the 2 to 2.5 Bcf/d that had been predicted. This is 160 MMcf/d less than last year. Cold winter weather in Europe has been drawing off the LNG, Harvey said, noting that Spain is paying the Henry Hub index plus $1, for LNG supplies, so most spot cargoes are going to Spain.
It was pointed out that LNG continues to be delivered to the Boston import terminal under long term firm contracts, but Lake Charles, LA mainly gets spot cargoes. BG Gas, which runs deliveries into Lake Charles, can easily divert the gas to higher-priced markets.
Meanwhile FERC Chairman Joseph Kelliher announced the Commission now is operating a new web page to monitor the "Winter Energy Outlook 2005-2006," which can be reached through the Commission's main web page at ferc.gov. The page, designed to aid consumers, gives a snapshot of energy supplies and prices with links to Commission policy statements and actions regarding natural gas and power.
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