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Warmer US winter hits natural gas prices
From the Financial Times of Tue, 23 Dec 2014 15:01:44 GMT

Natural gas fell to its lowest level in two years after demand for the heating fuel was hit by warmer than expected winter weather in the US.

Natural gas for January delivery has fallen more than 9 per cent this week to $3.144 per million British thermal units. On Monday, the price dropped 9.3 per cent — its biggest daily drop since February. Futures have lost 25 per cent this year on the New York Mercantile Exchange.

“It is clear that as cold as it was in November, it’s as mild or warm in December,” said Teri Viswanath, a natural gas analyst at BNP Paribas in New York. “The unseasonably warm weather that has persisted through this month now necessitates extreme conditions ahead in order to avert a surplus.”

The industry is on track for its lowest reduction in December stocks in three decades because of moderate heating demand and strong production growth, Ms. Viswanath said. More than 2,400 record high temperatures were recorded in the US in the first half of December, according to the Weather Channel.

“The market is looking pretty comfortable for this time of year, with lots of gas in storage,” said Trevor Sikorski at Energy Aspects. “A cold first quarter is the only thing that will rescue prices, then it’s all about supply.”

Traders were expecting a resumption of cold weather in January and February, which normally accounts for the bulk of heating demand, yet recent forecasts have suggested the usual cold winds from Canada will not hit the north central area of the US, Ms Viswanath said.

BNP Paribas estimated the industry will withdraw just 284bn cubic feet from working gas in storage this month, the lowest stock reduction since December 1984. The average daily storage withdrawals so far this season are half the levels recorded last winter, BNP said.

While the retirement of old US coal plants should increase demand for natural gas, which competes with coal as a source of power, that uptick in demand is expected to happen slowly next year, not in time to take up the slack from growing production.

Natural gas production in 2014 is expected to grow 5 per cent, or 3.34bn cubic feet per day, higher than the previous forecast of 2.9 bcf/d, the Energy Information Administration said this month.

There is also more supply coming on globally, especially in liquefied natural gas.

An expected boom in Chinese demand for LNG spurred a series of new projects in the region, yet demand this year has been weaker than expected and exports from the US are giving Asian buyers another option. Japan is expected to use less LNG because its nuclear reactors are being restarted after the Fukushima accident in 2011.

This month, the first of three planned LNG projects in Queensland, Australia run by BG Group prepared to start shipping. Earlier this year production also started at Papua New Guinea’s LNG project run by ExxonMobil.

On the west coast of Australia, the $54bn Gorgon LNG project, a joint venture between Chevron, Royal Dutch Shell, ExxonMobil and Osaka Gas, is due to begin production in mid-2015. And on the north coast the Ichthys LNG plant, operated by Inpex of Japan, will begin exporting gas in 2017.

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