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Slowdown in production growth supports Marcellus gas prices in January

Slowing natural gas production brought spot natural gas prices higher year over year in January, especially in the Northeast producing areas, in spite of a return to mild weather, which eased prices below those seen in December 2016.

Lower 48 natural gas storage inventories reverted back above the five-year average in the week ended Jan. 27 after seeing below-average withdrawals during three out of the four weeks leading up to that date.

Meanwhile, the latest estimates from the U.S. Energy Information Administration's drilling productivity report show year-over-year shale gas production growth stalling in January. The government agency estimates production averaged 18.4 Bcf/d during the month, up 1.6% versus the year-ago period, while Utica production was up 12.5% over the same period to 3.94 Bcf/d. Those levels are up 0.9% and even with the prior month, respectively.

A year ago, shale gas production growth was much higher, with January 2016 year-over-year production growth at 8.2% out of the Marcellus and 69.6% out of the Utica.

Turning to the markets, at $3.697/MMBtu, spot natural gas prices averaged highest in the Northeast in January. Relative to other parts of the country, the region saw the largest decrease versus the prior month, but the smallest increase versus the prior year.

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According to data from the U.S. National Oceanic and Atmospheric Administration, the week ended Jan. 14 was coldest in New England, allowing spot prices at Algon Gates to spike to $10.050/MMBtu on Jan. 9. But during the four weeks ended Jan. 28, the region saw gas home heating customer-weighted heating degree days, a proxy for heating demand for natural gas, down 18.1% below normal for the period.

Northeast spot prices declined most sharply versus the prior month at trading hubs located at demand centers in New England, while year-over-year increases were more muted. Algon Gates saw spot prices average $4.785/MMBtu, down 32.2% from December 2016, but up 4% versus the year-ago period. At the same time, stalled production growth in the Marcellus led prices hubs serving natural gas production to decline modestly versus the prior month but more than double year over year.

At Leidy, spot prices averaged $2.966/MMBtu, down 2.2% versus December 2016 but up almost 110% from the first month of 2016.

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Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power, natural gas and coal index prices, as well as forwards and futures, visit our Commodities pages.