Friday -- December 19, 2014

Active rigs:

	12/19/2014	12/19/2013	12/19/2012	12/19/2011	12/19/2010
Active Rigs	181	188	187	201	166

RBN Energy:

In the dead of the natural gas winter season when US producers count on strong margins from higher gas prices, the Transco Z6 New York hub is trading on average nearly flat  with U.S. benchmark Henry Hub, LA – the delivery point for the CME NYMEX natural gas futures contract. This is a dramatic departure from historical winter norms in the Northeast market, where prices relative to Henry and just about every other gas hub in the Northeast have traditionally carried hefty premiums in the winter. Moreover, the forward curves indicate these basis levels are the new norm for Northeast pricing. The forward curve for Transco Z6 New York shows basis for 2015 barely above Henry Hub for the year, with several months at more than $1.00/MMBtu discount. Today we look at what’s behind major changes in northeast forward curves.

This is Part 2 in our natural gas forward curve series. In Part 1 we explained natural gas forward markets and defined a forward curve. We clarified that forward curves are not the same as price forecasts because forwards reflect today’s value for future delivery of the gas, and that this value reflects the market’s expectations of supply and demand fundamentals for that future period. We explained that forwards in the gas market transact in terms of differentials to NYMEX Henry Hub, known as “basis,” and that adding the basis to the corresponding NYMEX contract derives the outright value of a forward market. Part 1 also reviewed the concept of seasonality in gas market forward curves. Patterns and trends in forward pricing are driven primarily by longer-term expectations for supply and demand dynamics at a particular hub for that future period. Forward curves within each major region of the US and even individual price hubs have unique characteristics and behave differently, depending on how much supply they receive, how much demand is served, what infrastructure and transportation is available and at what cost.