Natural Gas Weekly Update
Overview (For the Week Ending Wednesday, June 23, 2010)
- Natural gas spot and futures prices fell at all market locations in the lower 48 States since last Wednesday, June 16, completely reversing the previous week's gains. However, spot prices remain significantly higher than they were 3 weeks ago. Prices at most market locations fell between 10 and 25 cents per million Btu (MMBtu) this week, with most locations ending the week below $5 per MMBtu.
- At the New York Mercantile Exchange (NYMEX), the futures contract for July delivery at the Henry Hub ended trading yesterday at $4.804 per MMBtu, decreasing by 17 cents or about 4 percent during the report week. In contrast to last week's price movements, all futures contracts for delivery during the remainder of this injection season ended the report week below $5 per MMBtu.
- Natural gas in storage increased to 2,624 billion cubic feet (Bcf) as of June 18, following an 81-Bcf injection. Although current inventories remain well above the 5-year (2005-2009) average, this year's inventories have fallen below last year's for the first time since April. Net injections for the past 6 consecutive weeks were lower than last year's.
- The spot price for West Texas Intermediate (WTI) crude oil fell on the week, decreasing by $1.77 since Wednesday, June 16, to $75.90 per barrel or $13.09 per MMBtu.
More Summary Data
Temperatures across much of the country soared as summer officially began this report week, boosting natural gas demand for electric power generation. The market received an early reminder of the 2010 Atlantic hurricane season on Monday and Tuesday of this week with the first tropical depression of the season potentially developing in the central Caribbean Sea. Furthermore, there are two hurricanes in the Pacific Ocean, Celia and Darby. Nevertheless, natural gas spot price decreases coincided with increasing temperatures, suggesting that the associated increase in space-cooling demand perhaps only limited price declines. Although natural gas demand for electric power generation accounts for a significant share of total gas demand at this time of year, other factors likely dominated the economics of natural gas this week. These factors primarily included continued robust production and ample volumes of natural gas in underground storage. On the week, spot prices fell in all market regions in the lower 48 States, with the majority of the locations recording decreases between 10 and 25 cents per MMBtu. The Henry Hub spot price fell by 23 cents or 4.5 percent, ending the report week at $4.90 per MMBtu.
The Florida Gas Transmission (FGT) trading location registered the highest weekly decrease, falling $2.47 per MMBtu since last Wednesday. Despite the 30-percent decrease, the spot price at this location remains the highest-priced in the lower 48 States at $5.80 per MMBtu. The dramatic decrease at this location occurred despite fairly consistent temperatures in the mid-90s over the past week in FGT service territory. Those temperatures are forecasted to persist for much of the next report week as well. Natural gas prices at the FGT location ended trading yesterday at $5.80 per MMBtu, down from the previous Wednesday's price of $8.27.
Summer temperatures across much of the country likely led to the 12-percent increase in natural gas demand for electric power generation this report week, according to estimates from BENTEK Energy Services, LLC. Overall U.S. demand increased an estimated 3 percent this week, according to BENTEK. Residential and commercial demand decreased significantly compared with the previous week, sliding nearly 25 percent. Despite the jump in natural gas demand for electric power generation, prices in the lower 48 States decreased on the week. An increase in the supply of natural gas partially supported price declines, with Canadian imports rising nearly 9 percent. The Northeast, for example, received 42 percent more natural gas from Canada compared with the previous week. This increase in Canadian imports to the region likely offset and thus limited the impact of higher demand on spot prices. Spot prices in the Northeast fell by an average of 13 cents on the week. Domestic production remained robust, exceeding 60 Bcf per day in 6 out of the 7 days of the report week and consistently remaining above the 5-year maximum last report week.
Although prices in the Rockies and in the West registered the lowest decreases on the week, these locations remained among the lowest-priced in the lower 48 States. Price decreases averaged 10 cents per MMBtu in the Rockies and west of the mountain range, with trading locations in these areas decreasing between 3 and 14 cents. At the Pacific Gas and Electric spot location, which serves southern California markets, the price fell 13 cents or 3 percent on the week, ending trading yesterday at $4.46 per MMBtu. The largest price decreases in the Rockies occurred at the Colorado Interstate Gas Company and the Kingsgate spot locations, both of which fell by 14 cents or 3 percent on the week. In the Midwest and areas along the Gulf Coast, price declines averaged 21 cents per MMBtu, with the increase in weather-related demand likely mitigating declines. An increase in the hydropower generation also likely affected prices in the west (see Other Market Trends).
At the NYMEX, the price of the contract for July delivery decreased by more than 17 cents per MMBtu, ending trading for this report week at $4.804. The decline likely resulted from a number of factors. Continued high production levels and record levels of storage inventories are likely contributing to a perception of strong supplies. Lower prices for associated energy products, such as the decline in natural gas liquids prices, also likely caused price declines. Prices of natural gas liquids decreased recently, likely as a result of an increase in production. For example, the ethane/propane mix price at Conway has decreased. Nevertheless, the July contract is priced 65 cents per MMBtu higher than the final price of the June 2010 contract as of yesterday. While the price of NYMEX contracts for delivery through October 2010 experienced similar decreases of 17 cents per MMBtu on the week, prices for next winter declined by a slightly lower average of 12 cents. As of yesterday, the 12-month strip, which is the average for natural gas futures contracts over the next year, was priced at $5.24 per MMBtu, a decrease of about 11 cents, or 2 percent, since last Wednesday.
More Price Data
Working natural gas in storage totaled 2,624 Bcf as of Friday, June 18, according to EIA's Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection during the report week was 81 Bcf, which was lower than both the 5-year (2005-2009) average injection of 85 Bcf and last year's injection of 97 Bcf. Current inventories of natural gas in underground storage have fallen below last year's level for the first time since early April. As of last Friday, current inventories were 14 Bcf, or 0.5 percent lower than for the same week last year. However, storage levels in the East and West Regions continue to outpace year-ago levels. This latest report marks the sixth consecutive week that recorded net injections fell short of last year's.
Temperatures during the week roughly coinciding with the storage report were higher than both normal and year-ago levels. According to degree-day data from the National Weather Service, average temperatures in the country as a whole were about 2 degrees higher than normal, averaging at 72.7 degrees. Each Census Division, with the exceptions of the New England, Mountain, and Pacific Census Divisions, recorded temperatures that were warmer than normal. The East South Central Census Division registered temperatures that were 7 degrees warmer than normal, on average. The West South Central Census Division, which includes Texas and Louisiana, saw the highest average temperatures in the country during the week of 83 degrees (see Temperature Maps and Data).
More Storage Data Other Market Trends Appliance Efficiency Gains and Demographic Shifts Underlie Decline in Residential Consumption. EIA released Trends in U.S. Residential Natural Gas Consumption on June 23, which analyzes residential natural gas consumption trends in the United States through 2009. Over the 19-year period analyzed in the paper, the average volume of natural gas U.S. households consumed declined 22 percent. Residential per-customer consumption declined year over year in 16 of 19 years examined in the report. Analysis of regional data, which are available from 1998-2009, revealed that per-customer consumption fell over the last 11 years in each of the nine Census Divisions. The decrease was the result of appliance efficiency gains, improvements in housing construction, population shifts toward warmer areas (implying less use of natural gas for space heating), rising natural gas prices, and an increase in the proportion of customers who do not use natural gas as their primary space-heating fuel.
Hydropower Surge Leads to Reduced Natural Gas Prices and Deliveries in the Northwest. A surge in Northwest hydropower is affecting natural gas prices and supply in the region. Moderate weather in the region and increased hydropower production have reduced natural gas deliveries and depressed natural gas prices in the Northwest. Comparing the spread of natural gas day-ahead prices for delivery at the Stanfield hub in Oregon and the Malin hub in northern California to those at the Opal hub in Wyoming indicates the premium that gas in the Northwest typically receives has decreased (see figure below). For the month of May, the average spread between Stanfield and Opal was $0.122 per MMBtu. However, that average spread has decreased to $0.053 per MMBtu since the beginning of June. Similarly, the price difference between gas at Malin compared with Opal has decreased from the May average of $0.180 per MMBtu to an average of $0.133 per MMBtu since the beginning of June. The decreases in these spreads may encourage sellers of natural gas at Opal to sell their gas in markets that have a higher premium than the Stanfield and Malin markets. Although prices in the Northwest are declining, natural gas day-ahead prices increased in other regions over the last week, including at the Henry Hub in Louisiana and Transcontinental Pipeline Zone 6 in New York City. These divergent price patterns are indicative of different market fundamentals in the Western and Eastern United States. The decline in pricing premiums also affects natural gas flows. According to BENTEK Energy, since the start of June, average daily natural gas supply from the Rockies into the Northwest has fallen 47 percent below the level in May. Gas that may have normally moved to the Northwest is being shipped east and southwest, with natural gas flows to the East and Southwest Regions from the Rockies up 4 percent and 12 percent respectively.
Government and Industry Continue to Respond to Leaking Oil in the Gulf of Mexico. Response continues to the oil leak following the April 20 explosion aboard the Deepwater Horizon mobile offshore drilling unit. The rig was located about 50 miles southeast of Venice, Louisiana. Some of the latest facts (according to status reports from the Administration-wide response, unless where otherwise noted) include:
- On June 18, U.S. Secretary of the Interior Ken Salazar issued Secretarial Order 3302, changing the name of the Minerals Management Service (MMS) to the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOE), effective immediately. On June 21, Secretary Salazar swore-in Michael Bromwich as director of the BOE. President Barack Obama appointed Bromwich on June 15 to manage organizational reforms at MMS.
- On June 22, Louisiana Federal District Court Judge Martin Feldman issued a ruling suspending the U.S. Department of the Interior's (DOI) 6-month deepwater drilling moratorium. In his decision, Judge Feldman argued that the factors contributing to the Deepwater Horizon explosion were incident-specific, and thus failed to justify an industry-wide ban on deepwater drilling. Judge Feldman issued a preliminary injunction prohibiting DOI from enforcing the moratorium. Secretary Salazar stated in an official press release that the Department of Justice will appeal the ruling. However, deepwater drilling will not resume immediately as a result of the ruling.
- On June 8, MMS implemented extensive new safety regulations for all offshore oil and gas drilling operations in a Notice to Lessees. MMS specified that failure to comply with these new rules by June 28 may result in a shut-in order.
- MMS issued an additional Notice to Lessees on June 18, requiring all offshore oil and gas operators to submit information that addresses the possibility of a blowout and details blowout prevention measures when filing for a new drilling permit, exploration plan, or development plan.
Natural Gas Transportation Update
- Kern River Gas Transmission Company on June 23 reported that repairs on a unit at its compressor station in Veyo, Utah were complete. As a result, the system capacity of Kern River Pipeline returned to 2.2 Bcf per day through Veyo the same day. According to the company, a recently-discovered mechanical issue required an exchange of unit number 3 at the station, temporarily reducing the capacity of the line to about 2.1 Bcf per day. In a separate notice to customers, Kern River stated its intention to complete an annual test of the Emergency Shutdown (ESD) system at its compressor station in Anschutz, Wyoming, on July 13. The ESD test, which is required by the Pipeline and Hazardous Materials Safety Administration, will require a 4-hour shutdown of the compressor station. However, Kern River does not anticipate that the test will affect primary firm or interruptible transportation.
- Tennessee Gas Pipeline Company on Monday, June 21, began ESD testing for its compressor station 313 in Potter County, Pennsylvania. During the testing, Tennessee intends to install equipment to increase flexibility of flows on its pipeline in the region. The company said that there will be less flexibility to handle scheduled quantities during the maintenance. In particular, Tennessee will not accept customer nominations for injections and withdrawals from the Hebron storage field, also located in Potter County. The maintenance is expected to continue through June 25.
- Gulf South Pipeline on June 22 began unplanned maintenance at its compressor station in Simpson County, Mississippi. According to Gulf South, the work will likely continue for about 30 days. The station's capacity of about 1.3 Bcf per day will fall by as much as 150 million cubic feet (MMcf) per day during the maintenance.
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