Gas Market Update (November 6, 2012)

- November 6th, 2012

A brief overview of gas price developments, supply and demand and significant market movers.

The amount of hedging undertaken by North American producers has increased as natural gas prices recover from 10-year lows, according to market participants and company filings.

The front-month Henry Hub natural gas futures contract traded on CME Group’s New York Mercantile Exchange settled at $3.58 per million British thermal units (MMBtu) on November 5. That is an increase of over 80 percent from April, when the front-month contract traded at $1.98/MMBtu — its lowest level since 2002.

As the oversupply of natural gas has eased, producers have been stepping up hedging activity.

Mexican authorities awarded TransCanada (TSX:TRP,NYSE:TRP) another natural gas pipeline contract.

The company confirmed it will invest approximately $400 million in a 413-kilometer pipeline between El Oro and Mazatlan, near Mexico’s west coast.

TransCanada will build, own and operate the two new pipelines through its Mexican subsidiary, Transportadora de Gas Natural del Noroeste.

Iraq signed a final deal with a Pakistani company to explore for natural gas in the country in Baghdad’s latest effort to develop its vast natural resources.

In May, Iraq awarded Pakistan Petroleum the right to explore for gas in Block 8, a 6,000-square-kilometer area that is shared by the provinces of Diyala and Wasit. The company will be paid $5.38 for each barrel of oil equivalent, according to CTV.

The contract is one of four Iraq awarded in the latest round of bidding to search for oil and gas. It is estimated that the country holds 126.7 trillion cubic feet (Tcf) of natural gas.

Petronet LNG (BSE:532522) is looking to Canada as Prime Minister Stephen Harper visits India this week to attract buyers and investors in Asia, according to the Financial Post. Petronet has reportedly met with Joe Oliver, Canada’s natural resources minister, and has expressed interest in purchasing fuel from projects on the Canadian East Coast.

To meet India’s energy demand, which is expected to more than double by 2035, Petronet is also seeking contracts from as far afield as Australia and Russia.

Russian energy giant Gazprom announced that it has stressed the importance of natural gas supplies to Kazakh consumers during recent ministerial talks.

“The parties discussed a wide range of issues associated with cooperation between Russia and Kazakhstan in the oil and gas sector,” Gazprom noted in a statement. “Particular attention was given to the issues of natural gas supplies to consumers of the republic of Kazakhstan.”

Gazprom confirmed there is an estimated 116 Tcf of explored natural gas reserves in Kazakhstan.

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