Natural gas can account for as much as two-thirds of the total production costs for natural gas–based nitrogen fertilizer producers such as CF Industries (CF), Terra Nitrogen (TNH), PotashCorp (POT), and Agrium (AGU). Below we’ll discuss the weekly price movements for natural gas at Henry Hub in the US (MXI) 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 November 18, the average natural gas weekly spot prices at Henry Hub rose 10.8% to $2.4 per MMBtu (million British thermal units)—compared to $2.2 per MMBtu the previous week. Similarly, the front-month (expiring in December) futures rose 2.8% to $2.75 per MMBtu last week from $2.68 MMBtu.
The front-month futures in the United Kingdom NBP fell as much as 4.3% to $6.05 per MMBtu from $6.32 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 contracts fell 4% given that the US dollar strengthened against the pound last week.
In its latest November Short-Term Energy Outlook report, the EIA (U.S. Energy Information Administration) estimated an average price of $2.5 per MMBtu in 2016 at Henry Hub. For 2017, the EIA forecast that the natural gas price at Henry Hub will average $3.12 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.