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Natural Gas Weekly Update June 3

Overview (For the Week Ending Wednesday, June 2, 2010)

  • Since Wednesday, May 26, natural gas spot prices increased across the lower 48 States, with gains of up to $0.18 per million Btu (MMBtu), at most market locations. The Henry Hub natural gas spot price rose $0.13 per MMBtu, or about 3 percent, averaging $4.32 per MMBtu in trading yesterday, June 2.
  • At the New York Mercantile Exchange (NYMEX), the futures contract for July delivery at the Henry Hub settled yesterday at $4.42 per MMBtu, climbing by $0.25 or about 6 percent since the previous Wednesday.
  • Natural gas in storage was 2,357 billion cubic feet (Bcf) as of May 28, about 15 percent above the 5-year (2005-2009) average. The implied net injection for the week was 88 Bcf, falling significantly below historical levels for the week. Nevertheless, working gas stocks remain above record levels for this time of year.
  • The spot price for West Texas Intermediate (WTI) crude oil decreased by $1.36 per barrel since Wednesday, May 26, ending the report week at $72.88 per barrel or $12.57 per MMBtu.

NYMEX  Natural Gas Futures Near-Month Contract Settlement Price, West Texas  Intermediate Crude Oil Spot Price, and Henry Hub Natural Gas Spot Price  Graph

More Summary Data
Prices
Since last Wednesday, May 26, natural gas spot prices increased at market locations across the lower 48 States, climbing up to 4 percent on the week. Warm temperatures across most of the lower 48 States contributed to price gains heading into the Memorial Day holiday weekend. However, temperatures moderated mid-week, contributing to price declines in trading on Wednesday, June 2, that offset some of the earlier gains during the week.

Natural gas spot prices at the Henry Hub are trading above year-ago levels. At $4.32 per MMBtu in trading on June 2, prices at the Henry Hub were nearly 7 percent, or $0.27 per MMBtu, higher than year-ago levels. Natural gas spot prices at most markets elsewhere in the lower 48 States were trading at about 5 to 43 percent above year-ago levels. Higher spot prices may reflect recovery in the industrial sector and increases in crude oil prices since last year. In trading on June 2, the WTI crude oil price exceeded last year's level of $68.58 per barrel, or $2.94 per MMBtu, by 4 percent.

Prices at the Florida Gas Transmission Citygate trading point posted the largest net increase in the lower 48 States on the week, rising $0.39, or 8 percent, to $5.10 per MMBtu. Rising temperatures in Florida likely contributed to increased cooling demand for natural gas, resulting in rising prices in the State. Prices at the Florida Citygate have been the highest in the lower 48 States since an early heat wave in the first week of May. At $5.10 per MMBtu, prices at the Florida Citygate are $0.76, or 18 percent, above year-ago levels.

Natural gas consumption in the lower 48 States fell by 1 percent since last week, with significant declines in the residential, commercial, and industrial market sectors more than offsetting gains in the electric power sector, according to BENTEK Energy Services, LLC. Moderating temperatures and a holiday-shortened workweek likely contributed to falling demand in the residential/commercial sector. Natural gas consumption in this sector declined an estimated 11 percent on the week, or about 15 percent since last year at this time, according to BENTEK estimates. The industrial sector posted an estimated 3-percent decline in consumption on the week, but remained 6 percent above year-ago levels. This year-on-year consumption increase in the industrial sector suggests that the economic recovery may be contributing to higher levels of industrial activity, boosting demand for natural gas. In contrast, consumption in the electric power sector increased an estimated 4 percent on the week, or about 16 percent compared with last year at this time.

Natural gas supplies remained at last week's levels, as a result of increases in production and sendout of liquefied natural gas (LNG) offsetting a decrease in Canadian imports. On the week, natural gas supplies matched the preceding week's totals, exceeding year-ago levels by an estimated 2.2 percent, according to BENTEK estimates. Natural gas production increased an estimated 0.8 percent on the week, while LNG sendout rose 0.5 percent. Canadian imports declined by an estimated 7.2 percent on the week, but were 7.3 percent above year-ago levels. Current U.S. natural gas production was an estimated 2.2 percent above last year's level at this time. Total LNG sendout is estimated to be 16 percent lower compared with this time last year.

Spot  Prices

At the NYMEX, the 12-month strip (or the average price of futures contracts from July 2010 through June 2011) averaged $5.02 per MMBtu in trading on Wednesday, June 2, climbing $0.17 or 4 percent on the week. Most of the weekly gains in the 12-month strip occurred in trading on Wednesday, May 26, possibly because of expectations of sustained hot temperatures through the summer. Price increases since last Wednesday were strongest for the front months of the 12-month strip, with the contract for July delivery posting the largest gain of $0.25 per MMBtu on the week. Each successive contract recorded progressively smaller increases on the week. Natural gas futures prices for delivery during the remaining injection season months (July through October 2010) averaged $4.52 per MMBtu, increasing about $0.23, on average, since last Wednesday. Meanwhile, prices for delivery during the heating season (November 2010 through March 2011) averaged $5.32 per MMBtu, increasing $0.16 on the week. The 12-month strip traded at a premium of $0.70 to the Henry Hub spot price. This premium suggests the incentive for natural gas suppliers to replenish inventory levels of natural gas held in storage continues.


Wellhead Prices More Price Data
Storage
Working natural gas in storage increased to 2,357 Bcf as of Friday, May 28, according to EIA's Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection was 88 Bcf, compared with last year's net injection of 121 Bcf and the 5-year (2005-2009) average of 100 Bcf for the report week. Relatively warm temperatures leading to increased consumption of natural gas in most regions of the lower 48 States likely contributed to the below-normal rate of injections into storage. As a result, the year-on-year storage surplus narrowed considerably, falling from 71 Bcf to 38 Bcf more than last year. Working gas inventories were 306 Bcf above the 5-year average level. Working gas in storage exceeded the 5-year average for this time of year in each of the three storage regions, with the West region recording the largest surplus relative to the 5-year average of 114 Bcf and 105 Bcf in the East region. Working gas stocks in the Producing region are 88 Bcf above the 5-year average for the region, but 61 Bcf, or 7 percent, below last year's level.

Temperatures were generally warmer than normal in most Census Divisions in the lower 48 States during the week ended May 27. Based on the National Weather Service's degree-day data, temperatures in the lower 48 States during the week ending May 27 were, on average, about 3.6 degrees warmer than normal and 1.7 degrees warmer than last year (see Temperature Maps and Data). Temperatures were warmest in the East North Central, West North Central, West South Central, South Atlantic, and East South Central Census Divisions, where the average temperatures ranged between 70 and 79 degrees, on average. Elsewhere in the lower 48 States, average temperatures ranged between 55 and 68 degrees. In contrast to the rest of the lower 48 States, the Mountain and Pacific Census Divisions reported cooler-than-normal temperatures.

Working gas stocks are at record levels for this time of year, owing to record levels of working gas in storage in the East and West Regions. Prior to 2010, working gas stocks exceeded the 2,300-Bcf level during May only one other time, when working gas stocks were 2,337 Bcf for the report week of May 29, 2009. Historically high working gas inventories in the East and West regions of 1,095 and 394 Bcf, respectively, drove the overall record levels in the lower 48 States. As of May 28, working gas stocks in the East and West regions exceeded the previous record for the report week of 1,024 Bcf and 379 Bcf, respectively, reported on May 29, 2009.

Storage Table

More Storage Data Other Market Trends Colorado State University Researchers Revise Hurricane Forecast Upward. Colorado State University researchers on June 2 issued a revised hurricane forecast, which predicted a very active 2010 hurricane season. The forecast estimated 18 named storms, 10 hurricanes, and 5 major hurricanes will occur this season. The most recent predictions reflect an upward revision of Colorado State University's early-April forecast. The researchers noted that the revised forecast accounts for a transition from El NiƱo to current neutral conditions, as well as unusually warm Atlantic sea surface temperatures. The forecast is available here: http://tropical.atmos.colostate.edu/Forecasts/2010/june2010/jun2010.pdf.

President Obama Establishes Commission to Advise on Preventing and Mitigating Oil Spills. On May 22, President Barack Obama established the National Commission on the BP Deepwater Horizon Oil and Offshore Drilling, a bipartisan group tasked with recommending means of preventing future oil spills resulting from offshore drilling. The commission will focus on recommending environmental and safety precautions to be integrated with the regulatory framework to prevent oil spills. Bob Graham, a former U.S. Senator and former Florida Governor; and William K. Reilly, Founding Partner of the private equity firm Aqua International Partners, LP, and a former Environmental Protection Agency Administrator, will serve as bipartisan cochairs of the commission. In total, seven members will comprise the commission.

Six-Month Deepwater Drilling Moratorium Issued. The U.S. Department of the Interior on May 28 issued a 6-month moratorium on deepwater drilling that will provide time to implement new safety requirements. The moratorium directs oil and natural gas lessees and operators to cease drilling new deepwater wells; prohibits spudding of any new deepwater wells; and notifies oil and natural gas lessees and operators that (with certain exceptions) the Minerals Management Service will not consider drilling permits for deepwater wells and related activities for 6 months. According to the Department of the Interior, operators that are currently drilling wells to which the moratorium applies must secure the wells and cease operations. Deepwater wells are defined as those at a water depth greater than 500 feet. Activities necessary to support existing deepwater production may continue, but operators must obtain approval of those activities from the Department of the Interior. BENTEK Energy estimated that the 6-month moratorium could affect natural gas production in the Gulf of Mexico, but gains in onshore production would offset potential losses. BENTEK estimated that if all deepwater drilling were to cease immediately for a 6-month period, the supply loss would be 275 million cubic feet (MMcf) per day, or about 3.6 percent of Gulf of Mexico production. The moratorium comes at the same time as ongoing cleanup efforts in the Gulf of Mexico following the April 20 blowout of the Deepwater Horizon rig and subsequent oil spill. More information about the Department of the Interior's moratorium is available here: http://www.doi.gov/news/pressreleases/Interior-Issues-Directive-to-Guide-Safe-Six-Month-Moratorium-on-Deepwater-Drilling.cfm and information about the ongoing response to the oil spill in the Gulf is available here: http://www.deepwaterhorizonresponse.com/go/site/2931/.






Natural Gas Transportation Update

  • El Paso Natural Gas Company yesterday, Wednesday, June 2, said it plans to shut in Line 1300 between Roswell and Caprock, both in New Mexico, June 8-9 for pipeline and valve replacement. El Paso will lower physical capacity of 620 MMcf per day at its compressor station in Lincoln, New Mexico, to zero during that period.
  • Northwest Pipeline Company on Friday, May 28, began operating its pipeline segment between Kemmerer, Wyoming, and Pegram, Idaho, at design capacity of about 655 MMcf per day. The capacity had been reduced to 550 MMcf per day since early May because of maintenance relating to pigging runs, a process of sending pipeline inspection gauges or 'pigs' to perform various operations through a pipeline.
  • Southern California Gas Company this week announced plans to perform maintenance for several days in June, resulting in the reduction of injection capacity at storage fields on its system. On June 10, injection capacity at the utility's Aliso Canyon storage field in Los Angelos County, California will be reduced by 145 MMcf per day from a total of about 300 MMcf per day. At the La Goleta facility in Santa Barbara County, approximately 150 MMcf per day of injection capacity will be unavailable June 16-18.
  • Tennessee Gas Pipeline Company on Thursday, May 27, declared a force majeure on its pipeline segment in the South Timbalier area in offshore Louisiana. The pipeline company discovered that the segment was no longer resting on a support section, necessitating maintenance of the pipeline's right-of-way. Tennessee Gas expected flows at 11 affected meters to remain at zero until June 4.
See Weekly Natural Gas Storage Report for additional Natural Gas Storage Data.
See Natural Gas Analysis for additional Natural Gas Reports and Articles.
See Short-Term Energy Outlook for additional Natural Gas Prices, Supply, and Demand.

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