For natural gas–based nitrogen fertilizer producers such as CF Industries (CF), Terra Nitrogen (TNH), PotashCorp (POT), and Agrium (AGU), natural gas can account for as much as two-thirds of the total production costs. Now, we’ll discuss the weekly price movements for natural gas at Henry Hub in the US (XLB) and the NBP (National Balancing Point) in the United Kingdom—two locations where heavy natural gas trading takes place.
Spot and futures
For the week ending October 28, the average natural gas weekly spot prices at Henry Hub fell 13.3% to $2.7 per MMBtu (million British thermal units)—compared to $3.1 per MMBtu the previous week. Similarly, the front-month (expiring in November) futures contract also fell ~10.2% to $2.8 per MMBtu last week.
In contrast, the front-month forward contracts in the United Kingdom NBP rose 2.8% to $5.9 per MMBtu. The NBP prices are converted from the pound to the US dollar. Without the effect of currency exchange rates, the front-month NBP contract rose 3.2%.
In its latest[1. October 13, 2016] Short-Term Energy Outlook, the EIA (U.S. Energy Information Administration) had its natural gas price forecast to an average price of $3.04 per MMBtu in 4Q16 at Henry Hub. For 2017, the EIA forecast the natural gas price at Henry Hub to average $3.07 per MMBtu. In 2015, the average price of natural gas at Henry Hub stood at $2.63 per MMBtu.
In the next part of this series, we’ll take a closer look at coal—an alternative input material for nitrogen fertilizer production.