What a difference a year makes. Just a year ago the fertilizer industry was reeling under high natural gas costs brought on by Hurricane Katrina. Year-ago Henry Hub October prices were $11.336/mmBtu. On Thursday, Sept. 14, October closed on NYMEX at $4.892/mmBtu, a two-year low. November and December were $6.407/mmBtu and $8.047/mmBtu, respectively.
The impact of lower gas prices has been a major topic of conversation in recent weeks, including at the TFI World Conference in San Francisco last week. Last year, North American producers hardly knew from one week until the next whether high gas costs would allow them to produce. After Katrina, high gas prices continued through the rest of 2005 and did not start to significantly ease until the markets saw a warm winter in early 2006. Low prices now should allow domestic producers to run at full capacity into the spring – assuming no major weather changes, such as another hurricane or a cold winter.
So far in 2006, the weather has been on the side of domestic nitrogen producers. The National Oceanic and Atmospheric Administration reports that the period from January-August 2006 is the warmest on record in the continental U.S. This is tempered by NOAA’s additional findings that 40 percent of the country has moderate-to-extreme drought conditions, a factor that would significantly impact agriculture. Above-average rainfall in August helped ease drought conditions in some of the most severely affected states, including parts of Oklahoma, the Dakotas, Texas, Arizona, and New Mexico.
NOAA also said last week that the development of El Nino conditions helped explain the absence of Caribbean hurricanes this year. NOAA says El Nino normally suppresses hurricane activity by increasing vertical wind shear over the Caribbean.
NOAA said typical El Nino effects are likely to develop over North America this upcoming winter. This includes warmer-than-average temperatures over western and eastern Canada and the western and northern U.S. Wetter-than-average conditions are likely over portions of the U.S. Gulf Coast and Florida, while drier-than-average conditions can be expected in the Ohio Valley and the Pacific Northwest.
In the meantime, while not giving up the fight, industry associations said last week that time is running out for the passage of Outer Continental Shelf bills to spur increased drilling. TFI spokesperson Harriet Wegmeyer said that since there are only a few days left to the legislative calendar before elections, it is extremely doubtful that anything will move. At this point, the House and Senate just can’t agree on the bills – it’s just that simple, she said. The oil industry’s recent discovery of an impressive offshore field is not expected to have any impact on the OCS bills, she added.
Still, TFI had not completely given up. It made an appeal last week for quick reconciliation and passage of the HR4761 Deep Ocean Energy and Resources Act and S3711 Gulf of Mexico Energy Security Act. In a letter to the House and Senate leadership, TFI President Ford West declared, “It is critical for our industry and our farmer customers for the 109th Congress to enact measures to increase natural gas supplies.” He said HR4761 lifts an outdated 25-year-old moratorium on exploration for natural gas in waters within the jurisdiction of the United States, while S3711 expands natural gas exploration and drilling in the Gulf of Mexico by offering leases in these currently restricted areas.
ARA’s Richard Gupton is still hopeful an energy bill can get passed before Congress leaves to campaign at the end of this month. “However, given the current political atmosphere and strong opposition from environmental groups, it is likely going to be difficult to get anything done on this issue prior to the November elections.” On Sept. 8 Rep. John Peterson (R-Pa.) wrote President Bush to throw his weight behind the more far-reaching House approach. Peterson asserted that the Senate bill “which elicited a much more favorable response from your office” would allow only a small portion of the Gulf of Mexico to be leased, while the House bill makes available 15 times as much oil and nearly 18 times as much natural gas.