Brian Jeffries – Wyoming Pipeline Authority
- The average of the Inside FERC Monthly Index Prices for Colorado Interstate Gas (CIG), Kern River Transmission (KERN), and Northwest Pipeline (NWPL) for May 2018 is $1.87. This basket of index prices is representative of the price of natural gas delivered into the interstate pipeline grid in Wyoming. NYMEX for May 2018 settled at $2.82 yielding a basis differential of MINUS $0.95 per MMBtu. See item 1 below for a discussion of the basis differential.
- The index price for gas delivered to the Mid-continent (indicative of the price at the terminus of pipelines such as Cheyenne Plains) in May 2018 is $2.05.
- The index price for Chicago city-gates (representative of the destination of gas moving on Rockies Express Pipeline) for May 2018 is $2.58.
- The index price for the Malin Hub at the California/Oregon border (representative of the terminus of the Ruby Pipeline) for May 2018 is $1.93.
1 – Representative prices of natural gas for May 2018 for a various points in and outside of Wyoming.
The 95 cent price differential experienced for May 2018 is not a result of lack of pipeline capacity out of Wyoming. Instead it is a consequence of much cheaper gas from Canada and the Permian Basin affecting the price of gas in markets into which Wyoming gas is delivered and sold, particularly to the West and to the Midwest. The chart shows the major components of the natural gas grid in the western half of the United States. The darker blue ovals in the chart show the price of gas delivered at two points that are significantly impacting the price of gas in destinations important for Wyoming exported natural gas. One is a border crossing point from Canada into Idaho with a price of $1.69 per MMBtu and the other is the Permian Basin with a price of $1.41 per MMBtu. Gas from these locations have an impact on western and/or midwestern US markets. In effect, the destinations for Wyoming gas have a wide price differential to the Louisiana (the delivery point for the NYMEX natural gas futures contract at the Henry Hub).
Of the locations served by Wyoming, Chicago shows the highest of the accessible prices. Not surprisingly the Rockies Express Pipeline running from Wyoming to the Chicago area is running full. However, the transportation charge across this pipeline is roughly $1.00 per MMBtu. As you can see from the chart, the gross price difference between the Cheyenne Hub and Chicago is $0.67 per MMBtu. Holders of firm capacity on Rockies Express are effectively losing roughly $0.33 per MMBtu on this transaction. The explanation for this otherwise apparently irrational behavior is that the $1.00 per MMBtu transportation fee is a contractually obligated fee – whether the holder of the capacity actually ships any natural gas or not. So the decision to ship natural gas is rational in that the $0.67 per MMBtu is a least a partial recovery of a $1.00 per MMBtu fee that will be paid in any case. For those who hold capacity on Rockies Express, getting two-thirds of their money back in May 2018 is the best that it has been in years.
2 – Differential in price suffered by Wyoming Natural Gas from January 1993 to the present
3 – Natural Gas prices in Wyoming and price differential to the futures market price (NYMEX) for the last 36 months
4 – Report of Natural Gas in storage through the week ending March 23, 2018. Storage levels leading into the beginning of the re-injection season that begins April 1st will be below the five year prior average which is a supportive element for prices over the summer of 2018.
5 – Temperature deviation from normal forecast for upcoming June-July-August
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6 – Precipitation deviation from normal forecast for upcoming June-July-August
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7 – Price differential between Wyoming sweet crude oil as reported to the Energy Information Administration (EIA) and the corresponding monthly average NYMEX WTI crude oil futures prompt month contract through January 2018. Owing to reporting delays in the collection of data on crude oil purchases by the EIA, the data is only available on a three to four month lag