THE SOURCE - Summer 2018 - 11

change, on both the supply and the
demand side. Over the past four years,
U.S. dry gas production has grown by
nearly 7 Bcf/d to an average of 72.5 Bcf/d
in 2017. In January, production soared
to an all-time single day record of more
than 78 Bcf/d, and averaged a record
76.5 Bcf/d for the month, the highest
average for any month on record. Total
U.S. supply in January, which includes
exports from Canada, was more than
6 Bcf/d higher than January 2017. Rig
counts have posted significant gains
over the last year, and rising crude prices
over the last few years have resulted in
increases in associated gas production
that some experts claim accounts for
more than one-third of all U.S. natural
gas production.
Meanwhile, the demand profile in the
U.S. has also undergone major changes
in recent years, which has resulted in
significant demand side growth. Over
the same four-year span, total demand
in the U.S. has grown by nearly 8 Bcf/d to
an average of 75 Bcf/d in 2017. In January
2018, demand from traditional sectors
like residential/commercial, industrial
and power generation, combined with
"new world" demand components-
liquefied natural gas (LNG) exports
and exports to Mexico-to produce an
all-time single day demand record of
150 Bcf/d on January 1.
The Arctic blast that barreled
across many areas of the lower 48 in
early January sent heating demand
skyrocketing, resulting in an all-time
record high demand day for the
residential/commercial sector of 78
Bcf/d, and to an average of 50 Bcf/d for
the month, up 6 Bcf/d from last January.
Demand for natural gas from the
power gen sector also exploded higher,
averaging 24.5 Bcf/d, up 3.5 Bcf/d from
January 2017, while industrial demand
averaged 23.8 Bcf/d, a year-over-year
increase of 0.8 Bcf/d. Exports to Mexico
gained 0.5 Bcf/d from last January to
average 4.5 Bcf/d and LNG exports
averaged 2.6 Bcf/d, up 0.8 v Bcf/d from
last year. In total, demand in January 2018
averaged 106 Bcf/d, up 10 percent from
January 2017.
The extreme cold in January also led
to record-high withdrawals of gas from

U.S. storage fields. An all-time record
high storage withdrawal of 359 Bcf/d was
reported for the week ending January
5, and an all-time two-week record pull
from storage of 566 Bcf/d occurred, also
for the period ending January 5. For
the five-week reporting period ending
February 2, net storage withdrawals
totaled 1,048 Bcf/d, the second highest
total for any five-week period on record.
During this period, the deficit to the
five-year average storage level increased
from just 28 to 486 Bcf/d.
As we have seen in recent years,
when the deficit to the five-year average
grows, NYMEX NG Futures prices
typically respond in a bullish fashion. The
price action on the NYMEX in January is
evidence that this indicator does play a
role in near-term price direction. In the
five-week period between December 21
and January 29, prompt-month Futures
prices climbed from $2.598 to the $3.631
settlement price for the February 2018
Futures contract. The $3.631 settlement
marked a 13-month high daily close, the
highest since the market closed at $3.724
on December 30, 2016.
While the 40 percent gain in value of
the prompt-month Futures contract was
impressive, the longer dated contracts
were not impacted in such dramatic
fashion. During the same period, the
average price for the 2019 and 2020
calendar year strip averages gained just
3 percent and 1 percent, respectively,
suggesting that a continuation of the
domestic production boom and buildout
of the nation's pipeline system will
be enough to offset expectations for
continued growth in demand from LNG
exports and exports to Mexico. Late in
the month, weather conditions across the
eastern half of the U.S. moderated and
the rally on the NYMEX stalled. Promptmonth NYMEX Futures prices headed
southward, falling to an 18-month low
daily close of $2.558 in mid-February.
The volatility on the NYMEX did
provide a shot of adrenaline into a rather
listless market, but the biggest impact of
the 2018 version of the Polar Vortex was
seen in the daily spot markets. Similar
to the spike in prices that occurred
across many regions during the January
2014 Polar Vortex, gas prices in some

areas of the U.S. surged to four-year
highs in January, and in some cases,
to record-highs. Gas prices climbed
above $7 per MMBtu at the Henry Hub,
above $9 in Chicago and above $100
per MMBtu in several market areas,
including Algonquin, Transco Zone 5
and Transco Zone 6. The extreme cold
weather conditions that prevailed for
the first half of the month were replaced
by moderating weather patterns late in
the month, and the record-high prices
were replaced by a return to the $3 to
$4 range, or lower, across most regions
during the second half of the month.
Through all of the change that
has occurred across the natural gas
landscape in recent years, one thing
has remained a constant: the weather
is the ultimate fundamental driver of
the near-term natural gas market. I am
sure that widespread critical pipeline
restrictions and the volatile price
environment left some feeling like they
were stuck in a January that would
never end. For end users, that is very
understandable based on the level of
comfort that the Shale Gas Revolution has
provided in recent years.
If you are an end user and are in
search of a silver lining, the continuation
of the pipeline buildout that resulted
in completion of more than 9 Bcf/d
of new pipeline takeaway capacity in
2017 should help ease concerns of a
tightening supply/demand balance
in 2018. Longer term, the tug-of-war
between domestic production and
natural gas exports will be a key driver
for natural gas prices. But as always,
Mother Nature will have the final say in
near-term price direction, just like she
did in January 2014 and in January 2018.
Regardless of which direction you
feel natural gas prices will go from here,
the current market environment that
provides the ability to purchase gas for
the next three to five years at prices
below $3 may be advantageous for end
users of this domestic resource when
compared to the average annual prices
of the last 20 years. But, as always, you
should do your own research and rely on
your own judgment when determining
the price at which to lock in your
purchase of natural gas.
THE SOURCE | SUMMER 2018, VOL. 10, ISSUE 4 11



Table of Contents for the Digital Edition of THE SOURCE - Summer 2018

APGA Events
First Person
2018 Starts off with Gas Records
Energy Regulatory Update
The Result of Not Addressing Increasing Cybersecurity Risk
Conversation with an APGA Member
APGA Leads Charge to Lower Pipeline Rates to Match Lower Tax Rates
Legislative Outlook
Enhancing Resilience of Critical Infrastructure with Combined Heat and Power
The Pipeline
The Importance of Getting Involved with State and Local Building Code Developments
At Last
Advertisers’ Index/Advertiser.com
THE SOURCE - Summer 2018 - Intro
THE SOURCE - Summer 2018 - bellyband1
THE SOURCE - Summer 2018 - bellyband2
THE SOURCE - Summer 2018 - cover1
THE SOURCE - Summer 2018 - cover2
THE SOURCE - Summer 2018 - 3
THE SOURCE - Summer 2018 - 4
THE SOURCE - Summer 2018 - 5
THE SOURCE - Summer 2018 - 6
THE SOURCE - Summer 2018 - APGA Events
THE SOURCE - Summer 2018 - First Person
THE SOURCE - Summer 2018 - 9
THE SOURCE - Summer 2018 - 2018 Starts off with Gas Records
THE SOURCE - Summer 2018 - 11
THE SOURCE - Summer 2018 - Energy Regulatory Update
THE SOURCE - Summer 2018 - 13
THE SOURCE - Summer 2018 - The Result of Not Addressing Increasing Cybersecurity Risk
THE SOURCE - Summer 2018 - 15
THE SOURCE - Summer 2018 - 16
THE SOURCE - Summer 2018 - 17
THE SOURCE - Summer 2018 - Conversation with an APGA Member
THE SOURCE - Summer 2018 - 19
THE SOURCE - Summer 2018 - APGA Leads Charge to Lower Pipeline Rates to Match Lower Tax Rates
THE SOURCE - Summer 2018 - 21
THE SOURCE - Summer 2018 - Legislative Outlook
THE SOURCE - Summer 2018 - Enhancing Resilience of Critical Infrastructure with Combined Heat and Power
THE SOURCE - Summer 2018 - 24
THE SOURCE - Summer 2018 - 25
THE SOURCE - Summer 2018 - The Pipeline
THE SOURCE - Summer 2018 - The Importance of Getting Involved with State and Local Building Code Developments
THE SOURCE - Summer 2018 - 28
THE SOURCE - Summer 2018 - At Last
THE SOURCE - Summer 2018 - Advertisers’ Index/Advertiser.com
THE SOURCE - Summer 2018 - cover3
THE SOURCE - Summer 2018 - cover4
THE SOURCE - Summer 2018 - divider1
THE SOURCE - Summer 2018 - divider2
THE SOURCE - Summer 2018 - 35
THE SOURCE - Summer 2018 - 36
THE SOURCE - Summer 2018 - 40
THE SOURCE - Summer 2018 - 41
THE SOURCE - Summer 2018 - 42
THE SOURCE - Summer 2018 - 43
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