A spate of cold weather that crossed the U.S. last week was blamed for an uptick in natural gas prices on NYMEX, with the December front month closing up at $8.318/mmBtu Nov. 28. The January contract settled at $8.844/mmBtu on Nov. 30. While this was the highest front month close since Feb. 3, when March went off the board at $8.613/mmBtu, it was still much lower than the year-ago December close of $11.18/mmBtu.
Most analysts, citing significant amounts of gas in storage and expectations of a relatively warm winter, are expecting gas prices to remain relatively sedate compared to recent years.
In the meantime, a Nov. 30 report by Bank of America Securities LLC (BOA) expects fertilizer demand to spur a 5-10 percent increase in ammonia production, which in turn would mean a 0.1-0.2 Bcf/d of incremental gas demand. BOA estimates that the ammonia industry accounts for 2.5 percent of U.S. gas consumption. BOA expects ammonia production to increase to 90 percent in 2007, from an estimated 85 percent in 2006. While BOA says domestic ammonia margins have recently become negative due to increasing gas prices, it expects margins should turn positive in the next few months due to increased seasonal demand.
Citing the burgeoning ethanol market, BOA said acreage dedicated to corn is expected to increase roughly 6 percent to 84 million acres in 2007, versus a 3 percent drop in 2006, translating into a 4-8 percent increase in demand for nitrogen-based fertilizers, and a 9-12 percent increase in phosphate/potash-based fertilizers.
BOA expects 2007 ammonia imports to be flat, based on higher relative ammonia prices in Europe. BOA also expects urea imports to remain flat – despite increased world capacity – due to higher prices elsewhere and capacity delays.
BOA put ethanol production at 4 billion gallons in 2005, 5.2 billion in 2006, and 6.5 billion in 2007, or 30 percent per year. After 2007, it expects it to grow 1 billion gallons per year through 2015.
In the meantime, The Fertilizer Institute continues to work to assure that plenty of gas remains available. In a Nov. 28 letter, TFI urged the House and Senate leadership to schedule a House floor vote and support passage of the “Gulf of Mexico Energy Security Act” (S. 3711) in the waning days of the 109th Congress. S. 3711 expands natural gas exploration and drilling in the Gulf of Mexico by offering leases in currently restricted areas. TFI said more than 150 member company employees have also sent letters to their elected representatives asking for their support of S. 3711.