Natural gas prices , like other commodity prices, are mainly driven by supply and demand fundamentals. However, the price of natural gas can also be attributed to the price of crude oil and/or petroleum products, especially in continental Europe. Natural gas prices in the US have historically followed oil prices, but in recent years have been separated from oil and are now likely to rise at the price of coal.
The current surge in non-conventional oil and gas in the US has resulted in lower gas prices in the US. This has led to discussions in the Asian oil-related gas market to import gas based on the Henry Hub index (up until recently the most widely used reference to US natural gas prices).
Depending on the market, natural gas prices are expressed in US dollars (or other currencies) per 1 million British thermal units (MMBtu), thousand cubic feet (Mcf), or 1,000 cubic meters. Note that, for natural gas price comparison, $ per MMBtu is multiplied by 1,025 = $ per Mcf quality gas-pipeline, which is what is delivered to the consumer. For a rough comparison, one million Btu is roughly equal to one thousand cubic feet of natural gas. Pipe qualified gas has a slightly higher BTU value than pure methane gas, which has 1,012 BTU per cubic foot. Natural gas as it exits from the soil is most often dominated by methane, but may have various BTU values, from much lower (due to dilution by non-hydrocarbon gases) to much higher (due to the presence of ethane, propane, and more compounds weight) of the standard pipe quality gas.
Video Natural gas prices
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The natural gas market in the United States is divided between financial markets (futures), based on NYMEX futures contracts, and physical markets, prices paid for actual shipments of natural gas and individual delivery points across the United States. Market mechanisms in Europe and other parts of the world are similar, but not as well developed or complex as in the United States.
Futures markets
The standardized NYMEX natural gas futures contract is for the delivery of 10,000 mmBtu (10,000 million Btu) of energy (about 10,000,000 cubic feet (280,000 m 3 ) gas) at Henry Hub in Louisiana for shipping given the month consists of a number of different days. As a rough approximation, 1000 ft3 of natural gas? 1 MMBtu? 1 GJ. Monthly contracts expire 3-5 days before the first day of delivery month, in which merchant points can settle their position financially with other traders in the market (if they have not already done so) or choose to "go physically" and receive physical natural gas shipments (which actually quite rare in the financial market).
It should be noted that most financial transactions for natural gas actually occur in over-the-counter markets ("OTC") using "similar" contracts that conform to the general terms and characteristics of the NYMEX futures contract and settle against the final NYMEX contract value, but it is not subject to the necessary market rules and regulations on the actual exchange.
It is also important to note that almost all participants in the financial gas market, both on the exchange and outside the exchanges, participate only as a financial exercise to benefit from net cash flows that occur when financial contracts are settled among counterparties at the end of the trading contract. This practice allows for hedging financial exposure to transactions in the physical market by enabling physical suppliers and natural gas users to gain their financial market advantage against their future physical transaction costs. It also allows individuals and organizations that do not need or be exposed to large amounts of physical gas to participate in the natural gas market for the sole purpose of obtaining from trading activities.
In 2015-Nov Hen Natural Gas Spot Henry price - 2.09 ?? Million Btu ($ 77,133 per thousand cubic meters)
The physical market
In general, the physical price at the beginning of each calendar month at a particular shipping location is based on the final financial price completed for a given delivery period, plus the "base" value already paid for the location (see below). After the term contract period has expired, the gas is then traded daily in the "market day ahead" where the price for any given day (or occasionally 2-3 days when weekends and holidays are involved) is determined on the previous day by traders using the conditions localized requests and requests, especially weather forecasts, at specific shipping locations. The average of all individual daily markets within a given month is then referred to as the "index" price for that particular month in a particular location, and it is not uncommon for the index price for a particular month to vary greatly from that settled (plus basis) futures of the previous month.
Many market participants, especially those who transact in gas at the wellhead stage, then add or subtract a small amount to the nearest physical market price to arrive at the final price of their last transaction.
After a certain day gas obligation is resolved in the everyday market, traders (or more lower-level personnel in an organization known as "schedulers") will work with counterparty and pipeline representatives to "schedule" the gas flow to ("injection ") and exit (" pulling ") individual pipes and meters. Because, in general, the injection should be equal to the withdrawal (ie the net volume injected and drawn on the pipeline must be zero), pipeline scheduling and regulation are the main drivers of trading activity, and quite often the financial penalties incurred by the pipeline to the sender violating their terms of service far outweighs any losses traders might incur in a market that fixes the problem.
The base market
Because market conditions vary between Henry Hub and about 40 physical trading locations around the United States, financial traders also usually transact simultaneously in financial "base" contracts that are intended to estimate differences in local geographic and market conditions. The rules surrounding these contracts - and the conditions under which they are traded - are almost identical to the underlying gas futures contracts.
Derivatives and market instruments
Since the US natural gas market is so large and well developed and has many independent parts, it allows many market participants to transact under complex structures and use market instruments that are not available in the simple commodity market where the only available transaction is buying or sell the underlying product. For example, other derivative options and transactions are very common, especially in the OTC market, as well as "swap" transactions in which participants exchange rights for future cash flows based on the underlying index price or delivery liability or time period. Participants use these tools to better protect their financial exposure to underlying natural gas prices.
Maps Natural gas prices
Demand for natural gas
The demand for natural gas is mainly driven by the following factors:
- Weather
- Demographics
- Economic growth
- Fuel competition
- Storage
- Export
Weather
Weather conditions can significantly affect the demand and supply of natural gas. Cold temperatures in winter increase demand for heating of rooms with natural gas in commercial and residential buildings.
Natural gas demand usually peaks during the coldest months of the year (December-February) and the lowest during the "shoulder" months (May-June and September-October). During the hottest summer (July-August), demand increases again. Due to population shifts in the United States toward the sun belt, summer demand for natural gas is increasing faster than winter demand.
Temperature effects are measured in terms of 'warming degree days' (HDD) during the winter, and 'cooling degree days' (CDD) during the summer. HDD is calculated by reducing the average temperature for one day from 65 degrees. So, if the average temperature for the day is 50 degrees, there are 15 HDDs. If the average temperature is above 65 degrees, the HDD is zero.
The days of cooling degrees are also measured by the difference between average temperature and 65 degrees. So, if the average temperature is 80 degrees, there are 15 CDD. If the average temperature is below 65 degrees, the CDD is zero.
Storms can affect the supply and demand of natural gas. For example, when a hurricane approaches the Gulf of Mexico, the offshore natural gas platform is closed when workers are displaced, thus closing in production. In addition, hurricanes can also cause severe damage to offshore production facilities (and on land). For example, Hurricane Katrina (2005) produced a massive closure of natural gas production.
Hurricane damage can also reduce the demand for natural gas. The destruction of power lines that disrupt electricity generated by natural gas can lead to a significant decrease in demand for a particular area (eg, Florida).
Demographics
Changing demographics also affects demand for natural gas, especially for core housing customers. In the US for example, recent demographic trends indicate an increase in population movements to Southern and Western countries. These areas are generally characterized by warmer weather, so we can expect a decrease in demand for heating in the winter, but an increase in demand for cooling in the summer. Since electricity currently supplies most of the cooling energy needs, and natural gas supplies most of the energy used for heating, population movements can reduce natural gas demand for these customers. However, as more and more power plants are driven by natural gas, natural gas demand can actually increase.
Economic growth
The economic situation can have a profound effect on natural gas demand in the short term. This is especially true for industries and at lower levels of commercial customers. As the economy is booming, output from the industrial sector generally increases. On the other hand, when the economy is in recession, output from the industrial sector falls. Fluctuations in industrial output that accompany the economy affect the amount of natural gas needed by these industrial users. For example, during the economic recession of 2001, US natural gas consumption by the industrial sector fell by 6 percent.
Fuel competition
The dynamics of supply and demand in the market determine the short-term price for natural gas. However, this can work in reverse too. Natural gas prices can, for certain consumers, affect their demand. This is especially true for consumers who have the ability to replace the fuel they consume. In general core customers (residential and commercial) do not have this capability, however, a number of industrial and electrical generation consumers have the ability to switch between fuels. For example, when natural gas prices are very high, electricity generators may shift from using natural gas to using less expensive coal or fuel. This fuel shift then leads to a decrease in natural gas demand, which usually tends to drop its price.
Storage
North America (positive) natural gas injections are additional demand and compete with alternative uses such as gas for heating or for power generation. The natural gas storage rate significantly affects commodity prices. When the storage level is low, the signal is being sent to the market indicating that there is a smaller inventory pad and the price will rise. On the other hand, when storage levels are high, this sends a signal to the market that there is greater supply flexibility and prices will tend to fall.
Export
Export is another source of demand. In North America, the gas is exported to its producing countries, Canada, US and Mexico and abroad to countries such as Japan.
Natural gas supply
supply for natural gas is mainly driven by the following factors:
- Pipeline capacity
- Storage
- Gas drilling rate
- Natural phenomena
- Technical issues
- Import
- Transport Wholesale Rates
Channel capacity
The ability to transport natural gas from the wellhead from the producing region to the consuming area affects the availability of supply in the market. Infrastructure of interstate and intrastate pipelines has limited capacity and can only transport so much natural gas at one time. It has the effect of limiting the maximum amount of natural gas that can reach the market. The pipeline infrastructure is currently developing, with EIA estimating that the daily grid delivery capacity is 119 ÃÆ'â € " 10 9 Ã, cuÃ, ft (3,4 ÃÆ' - 10 9 m 3 ). However, natural gas pipeline companies should continue to expand pipeline infrastructure to meet future demand. The addition of Canadian Pipeline will provide additional resources for North American residents, CommercialNG.com
Storage
As natural gas (positive) injection is an additional demand, withdrawal (negative) is an additional source of supply that can be accessed quickly. More and more storage banks such as shale deposits used provide more pillows for the natural gas market.
Gas drilling rate
The amount of natural gas produced from both related and unrelated sources can be controlled to some extent by the producers. Drilling rates and gas prices form a feedback loop. When supply is low relative to demand, prices go up; This gives market signals to producers to increase the number of rig drilling for natural gas. Increased supply will lead to a fall in prices.
Natural phenomena
Natural phenomena can significantly affect the production of natural gas and thus supply. Storms, for example, can affect offshore production and natural gas exploitation. This is because safety requirements can mandate the temporary cessation of offshore production platforms. Tornadoes can have the same effect on land production facilities.
Technical Problems
Equipment damage, though not often, can temporarily disrupt the flow across the pipeline provided at an important market center. This will ultimately reduce the supply available in that market. On the other hand, technical developments in engineering methods can lead to more abundant supply.
Import
Import is the source of supply. In North America, gas is imported from several countries, Canada and the United States as well as abroad in the form of LNG from countries like Trinidad, Algeria and Nigeria.
Natural gas price trends
The graph shows the history of 75 years of annual US natural gas production and average wellhead prices from 1930 to 2005. Consumer prices paid rise above that level with processing and distribution costs. Production is shown in billions of cubic meters per year, and the average wellhead price is shown in US dollars per thousand cubic meters, adjusted to spring, 2006, by the US Consumer Price Index.
Throughout the 1960s, the United States was self-sufficient in natural gas and wasted most of its withdrawal by means of ventilation and burning. The gas flare is a common sight in oil fields and in oil refineries. US natural gas prices were relatively stable around (2006 US) of $ 30/Mcm in the 1930s and 1960s. The price hit its lowest point around (2006 US) $ 17/Mcm in the late 1940s, when more than 20 percent of natural gas withdrawn from US reserves was dumped or burned.
Beginning in 1954, the Federal Power Commission regulates the price of US natural gas transported across state borders. The Commission sets the price of gas below market prices, resulting in price distortions. Low prices encourage consumption and reduce production. In the 1970s, there was a shortage of price-controlled interstate gas, while unregulated gas in intrastate gas was abundant, but more expensive. In 1975, nearly half of the gas marketed in the United States was sold to the intrastate market, resulting in shortages during 1976 and 1977 in the Midwest causing factories and schools to close temporarily due to lack of natural gas. The federal government further deregulated natural gas prices starting in 1978, and ended with a complete federal price deregulation in 1993.
While supply interruptions have caused a recurring price spike since 1990, longer range price trends respond to resource constraints and their rate of development. In 2006 the US Department of the Interior estimated that the Outer Continental Shelf in the United States has more than 15 trillion cubic meters of natural gas that can be recovered, equivalent to about 25 years of domestic consumption at current levels. Total US natural gas reserves are estimated at 30 to 50 trillion cubic meters, or about 40 to 70 years of consumption. New hydraulic fracturing and horizontal drilling technologies have increased the estimated recoverable reserves to hundreds of trillions of cubic feet. The hydraulic cracking has significantly reduced the Hub Henry gas spot price since 2008. Increased production of shale gas causes a shift in supply from the south to the northeast and southwest of the country. A recent study found that, on average, natural gas prices have fallen by more than 30% in countries above shale deposits compared to other parts of the US, highlighting that the natural gas market has become less integrated due to capacity constraints of the pipeline.
Price of natural gas in Europe
Natural gas prices for end consumers vary widely across Europe. One of the main objectives of the projected single EU energy market is the general pricing structure for gas products. A recent study shows that the expansion of shale gas production in the US has caused prices to fall relative to other countries, especially Europe and Asia, making natural gas in the US cheaper by a factor of three. It is expected that the TTIP trade agreement between the US and Europe opens access to cheap American natural gas, allowing Europe to diversify its supply base, but can threaten the transition of Renewable Energy.
Currently, the main European natural gas supplier is Russia. The main pipeline passes through Ukraine and there are some disputes on the supply and price transition between Ukraine and Russia.
In September 2013, it was reported that several factors have conspired to cause Europe as a whole to reduce the use of natural gas and make more use of coal. This report also contains the latest price trends.
Natural gas prices in South America
In South America, the second largest supplier of natural gas is Bolivia. The price paid by Bolivia for its natural gas is about US $ 3.25 to Brazil and US $ 3.18 to Argentina. Another source states that Brazil pays between US $ 3.15/MMBtu and US $ 3.60/MMBtu (excluding US $ 1.50/MMBtu in Petrobras extraction and transportation costs). The overall gas price in the US is between US $ 5.85/MMBtu (May 21, 2006), US $ 7.90/MMBtu (April 2006) & amp; US $ 6.46/MMBtu (June 2006). Although a few years ago natural gas prices soared at $ 14 in California due to a lack of pipeline capacity to and within California, and also due to power outages. Meanwhile, according to Le Monde, Brazil and Argentina paid US $ 2 per thousand cubic feet, which cost between $ 2.21 to $ 2.28 per mmBTU in California according to Reuters.
See also
- Natural gas storage
- Liquefied natural gas
- Natural gas processing
- The energy economy
- Energy crisis
- Henry Hub
References
External links
Source of the article : Wikipedia
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