Natural gas broke out above $4.00 in decisive fashion as the trade seemed to embrace the fact that Goldman Sachs has upped their natural gas forecast getting more in line with my forecast and catching up with the bottom that I called in January. The natural gas market seemed to rally after the Goldman seal of approval, yet readers of The Energy Report should have been expecting this breakout all along. We’re glad Goldman is catching up with my earlier call.
As reported by Reuters News, “Goldman Sachs has raised its 2013 U.S. natural gas price forecast by 17%, citing cold weather in March and a tightening market.” It seems Goldman realizes that, “demand growth against stable production has lowered U.S. inventories to 1.7 trillion cubic feet (Tcf) at the end of March from 2.5 Tcf last year. So it raised its Nymex natural gas price forecast to $4.40 per million British thermal units (mmBtu) for the balance of 2013 from $3.75 per mmBtu.”
While some may have been waiting for an excuse or intervention from Goldman Sachs to drive this market higher, the truth is the fundamentals for this market are getting more bullish each day and it is getting harder for the former bears to ignore it. Natural gas inventories fell below the five-year average for the first time in 19 months. We had hot weather in Texas and below normal temperatures in the Midwest and Northeast. Falling natural gas rig counts, near record demand and sharply rising demand expectations all are conspiring to put in a solid low.
On Friday producers seemed to be saying quite clearly that we need a higher price for natural gas to keep up with rising demand. The Baker Hughes Natural Gas rig count fell to a 14-year low as producers seem to be demanding higher prices. That is especially true in the back end of the curve as it is being projected that next winter’s supply of gas will be at the lowest level since 2008. To avoid shortages prices must rise to make sure that demand is met.
Demand expectations are rising because, as Bloomberg News reported, power producers including Duke Energy Corp., NRG Energy Corp., Southern Co. and Dynegy Inc. say they plan to run their gas-fired units this year at close to the top rates of 2012 as the EPA puts pressure on coal.
As I wrote in mid-March, “In what could be the best long term play in all of the commodities markets, the natural gas may be on track to create a major bottom. The reason is that because of the shale gas revolution and the low price of natural gas, demand is being created. Low prices at some point always cure low prices and with the abundance of natural gas, it's cleaner burning properties means natural gas’ time is here.”
As reported by Bloomberg News on Feb. 22, “Gas for delivery in three years may rise to between $5 and $8 per million British thermal units should LNG terminals from Texas to Oregon start moving cargoes, according to estimates from BNP Paribas, Price Futures Group and Barclays Plc. That’s at least 14% higher than where markets are pricing 2016 gas today, based on Bloomberg Commodity Fair Values. As much as 10% of U.S. output is likely to be earmarked for export as LNG by 2016, according to Goldman Sachs Group Inc. estimates.”
And it is! E Science News writes, “The cost of complying with tougher EPA air-quality standards could spur an increased shift away from coal and toward natural gas for electricity generation, according to a new Duke University study. The stricter regulations on sulfur dioxide, particulate matter, nitrogen oxide and mercury may make nearly two-thirds of the nation's coal-fired power plants as expensive to run as plants powered by natural gas, the study finds. "Because of the cost of upgrading plants to meet the EPA's pending emissions regulations and its stricter enforcement of current regulations, natural gas plants would become cost-competitive with a majority of coal plants -- even if natural gas becomes more than four times as expensive as coal."
As for the politics of the issue, Ben Geman of “The Hill” reports, this “week is jam-packed on the energy front in Washington, D.C. It will bring public grilling of President Obama’s choices to run the Energy Department and the Environmental Protection Agency, battles over the Keystone pipeline, and more. Ernest Moniz, Obama’s choice to replace outgoing Energy Secretary Steven Chu, will face the Senate Energy and Natural Resources Committee on Tuesday. The Massachusetts Institute of Technology physicist, who heads the university’s Energy Initiative, isn’t expected to hit major roadblocks en route to confirmation.
“But Moniz has drawn scrutiny, and some criticism on the left, over the MIT group’s support from big oil companies, as well as his consulting and advisory work with BP and other companies.
“Look for a more contentious affair Thursday when EPA nominee Gina McCarthy appears before the Senate Environment and Public Works Committee. McCarthy is the EPA’s top air quality official and, if confirmed, would replace former Administrator Lisa Jackson. The Senate committee includes three of Capitol Hill’s most outspoken critics of the EPA: The panel’s ranking Republican David Vitter (La.), James Inhofe (R-Okla.) and John Barrasso (R-Wyo.).
“Beyond the confirmation fights, next Wednesday brings release of the delayed White House fiscal 2014 budget proposal. Obama will likely revive his fight with Republicans and Democrats from oil-producing areas over petroleum industry tax policy. His previous spending plans have called for stripping billions of dollars’ worth of tax incentives from oil-and-gas producers, but Congress has not gone along. The budget could also put meat on the bones of other White House energy-related plans.
“They include Obama’s call to steer $2 billion over a decade from offshore oil-and-gas royalties into the development of technologies that wean the transportation sector off oil. And before the budget’s release, a top White House aide will promote Obama administration energy policies. Heather Zichal, a senior White House climate and energy aide, will speak Monday at a conference hosted by the group Transportation Energy Partners. The conference is focused on alternative transportation fuels. The fight over the Keystone pipeline, which would bring crude from Alberta’s oil sands projects to Gulf Coast refineries, will flare on at least two fronts next week. On Tuesday, Alberta Premier Alison Redford will make the case for the project during an appearance at the Brookings Institution. She will talk about the Keystone pipeline as part of a broader discussion on the U.S.-Canada energy relationship. Wednesday, a House Energy and Commerce Committee subpanel will review legislation that would approve the pipeline, a project that remains under Obama administration review. House GOP leaders have assigned number H.R. 3 to the bill, signaling that it’s a high priority.”