FERC report outlines shifts, and generally low prices, in the 2014 gas market

Plans to export liquefied natural gas (LNG) from the U.S. continue to move forward, and as of the end of 2014, eight projects had been approved, with four under construction including those at Sabine Pass, which is expected to enter service in 2016, and at Freeport LNG, Cove Point LNG and Cameron LNG.

That is according a market report for 2014 from Federal Energy Regulatory Commission that was presented to the commission at its March 19 meeting.

Meanwhile, reliance on LNG imports continued to decrease, the report added. Sendouts from U.S. LNG terminals averaged 100 MMcfd in 2014, 67% below the 2013 levels, while imports from Canaport LNG into New England averaged 49 MMcfd, 52% below 2013.

Gross natural gas imports from Canada in 2014 averaged 7.2 Bcfd. However, exports from the U.S. to Canada averaged 2.1 Bcfd. This makes net Canadian imports 5.2 Bcfd. Marcellus shale production in the U.S. continued to displace Canadian imports, with flows from the Northeast into Ontario reaching 350 MMcfd in August 2014.

The Northeast U.S. became a net exporter of natural gas for the first time last summer and future pipeline expansions are targeting exports to eastern Canada, the Midwest, the Southeast, and the Gulf Coast. As Marcellus Shale gas makes its way into neighboring regions, its impact on markets and basis relationships will broaden, the report noted. Last summer, New York and Boston experienced prices below Henry Hub for the first time.

Gas exports to Mexico reached 2 Bcfd in 2014, up from 1.8 Bcfd in 2013 supported by the growth in Eagle Ford Shale production in South Texas and by new pipeline infrastructure across the border. Exports will likely continue to rise as Mexican power generation demand increases, and as more pipeline capacity goes into service, including the 2.1 Bcfd NET Midstream Rio Grande pipeline, scheduled to enter service in 2016, FERC staff noted.

With the exception of a few moderate weather driven price spikes since the start of 2015, prices remained relatively low this past winter. The forward curve at most major trading points indicates market participants expect prices to remain low for the rest of 2015. The exceptions are Boston and New York City, where futures prices for December 2015 through February 2016 average $11.61 and $9/MMBtu, respectively, due to continued pipeline constraints into these markets. For the rest of 2015, the forward curve suggests that natural gas, rather than coal, will be on the margin as it was in 2012, which could lead to increased substitution of gas-fired generation for coal-fired generation this summer, the report said.

Natural gas production grew 5% in 2014, averaging 68.4 Bcfd and breaking the record set in 2013. Two shale formations, the Marcellus in Pennsylvania and the Eagle Ford in Texas, accounted for 34% of the production increase, averaging 14 and 4 Bcfd respectively. Crude oil prices fell from $115 per barrel in mid-June to $53 at the end of December, reducing drilling activity in the latter half of 2014. However, natural gas production continued to climb. There is concern that prolonged low crude oil and natural gas prices could result in slower growth or even a decline in natural gas production. However, year-to-date production has consistently remained above 71 Bcfd, and by the end of February, it was on average 6.4% higher than in the first two months of 2014.

The spot natural gas price at the Henry Hub averaged $4.32/MMBtu in 2014, 16% higher than in 2013. Prices were on average 14% to 43% higher at key hubs throughout the country, with the Chicago Citygate experiencing the highest increase. Price spikes during the Polar Vortex events early in 2014 drove many of the increases, with Transco Zone 6 Non-NY reaching $123/MMBtu in January. Although prices began to moderate in the spring, concerns about low storage inventories kept prices up until early summer. Prices fell in the fall as storage recovered, and by late December, the Henry Hub price was below $3.00.

The 43% increase in the average price at the Chicago Citygate was a result of both the high price levels during the harsh winter, and of continued reliance on natural gas supplies from Canada. Canadian prices were 31% higher in 2014 than in 2013, as they recovered from an oversupply condition in 2013. In addition, natural gas demand in the Midwest in 2014 was the highest on record, up 3% from 2013. In contrast, the Northeast experienced some of the lowest year-on-year price increases, as the region benefitted from growing Marcellus Shale supplies.

The Office of Enforcement’s Division of Energy Market Oversight presented this 2014 State of the Markets Report. It is staff’s annual opportunity to share its assessment on natural gas, electric, and other energy markets developments.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.