Gas Market Update (March 26, 2013)

Natural gas futures saw little change during Monday morning trading. Prices hovered below last week’s 18-month high as market players remained hesitant to extend a recent rally amid bearish chart signals.

On the New York Mercantile Exchange, natural gas for April delivery rose 5 cents, to $3.97 per million British thermal units (MMBtu). Natural gas prices have risen sharply in recent weeks, with heating fuel up almost 21 percent since falling close to a four-month low of $3.12 per MMBtu on February 15.

Prices have closely tracked shifting weather forecasts recently, with natural gas futures breaking above the key $4-per-MMBtu level for the first time in 18 months after a US government report showed that natural gas supplies fell more than the five-year average last week.

The US Energy Information Administration confirmed that natural gas storage in the US for the week ended March 15 fell by 62 billion cubic feet (Bcf). Inventory withdrawals were flat in the same week a year earlier, while the five-year average change for the week was a decline of 26 Bcf.

Total US natural gas storage stood at 1.876 trillion cubic feet (Tcf) as of last week, 21.5 percent below levels this time last year, but still 9.5 percent above the five-year average.

A Japanese energy explorer confirmed that it has extracted gas from offshore methane hydrate deposits for the first time as part of an attempt to achieve commercial production. Japan has invested several hundred million dollars in developing technology to tap methane hydrate reserves off its coast, according to a report by Reuters.

State-run Japan Oil, Gas and Metals National said the gas was tapped from deposits of methane hydrate, a frozen gas known as “flammable ice,” near Japan’s central coast. Methane is a major component of natural gas, and countries including Canada, the United States, Norway and China are also looking at exploiting hydrate deposits as an alternative source of energy. A Japanese study estimates that at least 40 Tcf of methane hydrates in the Eastern Nankai Trough off the country’s Pacific coast.

Russia has agreed to supply China with natural gas in a deal that could see the Asian nation surpass Germany as the largest importer of Russian gas, according to a report by The Wall Street Journal.

Last week, officials signed a range of energy agreements, including one to double Russian oil supplies and hand China’s state oil firm a stake in Russian oil fields. China’s president, Xi Jinping, described the accords a “breakthrough,” while Vladimir Putin, president of Russia, said the visit will have “long-term, historic results.”

Russian state-run gas giant Gazprom (MCX:GAZP) noted that it will conclude a 30-year supply deal with China by the end of the year. Under the terms of the memorandum, annual deliveries of 38 billion cubic meters of gas will begin in 2018. Meanwhile, another state-run oil firm, Rosneft (MCX:ROSN), signed a deal to double oil supplies to China. Rosneft will receive a $2-billion loan from China’s state development bank under the new 25-year deal.

Natural gas is positioned to make a sustained impact on the global energy market, but only if it is developed responsibly, according to Maria van der Hoeven, executive director of the International Energy Agency (IEA).

“Natural gas is poised to enter a golden age but will do so only if a significant proportion of the world’s vast resources of unconventional gas can be brought to markets in a manner that is both profitable and that addresses the legitimate public concerns about the associated environmental and social impacts,” she said.

As a result of developments in shale exploration, the IEA said the United States is expected to be a net exporter of natural gas by 2020 and that the North American region should replicate this trend for oil by 2035.