Natural Gas Weekly Update
Overview (For the Week Ending Wednesday, May 12, 2010)
- Natural gas spot prices increased at nearly all market locations in the lower 48 States, with price hikes ranging between 6 and 30 cents per million Btu (MMBtu). The Henry Hub spot price ended the report week yesterday, May 12, at $4.18 per MMBtu, 18 cents higher than the preceding week.
- At the New York Mercantile Exchange (NYMEX), the futures contract for June delivery at the Henry Hub ended trading yesterday at $4.284 per MMBtu, increasing by 29 cents or about 7 percent during the report week.
- Natural gas in storage increased to 2,089 billion cubic feet (Bcf) as of May 7, following a 94-Bcf injection. The latest report marked the earliest date at which the total volume of natural gas in underground storage exceeded 2,000 Bcf. As of last Friday, inventories were 18.4 percent above the 5-year average (2005-2009).
- The spot price for West Texas Intermediate (WTI) crude oil fell on the week, decreasing by $4.35 per barrel since Wednesday, May 5, to $75.65 per barrel or $13.04 per MMBtu.
- The number of natural gas rigs drilling totaled 953 for the week ended May 7, according to Baker Hughes Incorporated. The rig count decreased by 5 rigs compared with the previous week ended April 30.
More Summary Data
Natural gas spot prices rose this week in response to increased heating and cooling demand during the week. The largest spot price increases on the week occurred at trading locations that serve markets in the Midcontinent and the Midwest. However, a number of locations in the Northeast, Texas, and Louisiana also registered price increases of over 20 cents per MMBtu. In the Northeast, spot natural gas was traded at the second-highest prices in the lower 48 States, second only to the price of gas in Florida. Prices in the Rocky Mountains ended the week at around $3.84 per MMBtu, the lowest spot prices in the country. Price increases at trading locations serving markets located in the Rockies and west of the mountain range were generally limited to 15 cents per MMBtu.
The only trading location to register a price decrease this week was Florida Gas Transmission's (FGT) point for delivery into the Florida Panhandle. This week's price decrease in Florida was only slight, about 8 cents per MMBtu. The price decline followed a significant price jump the prior week, which was the result of significantly above-normal temperatures across the State. Despite the slight decrease, FGT remained the highest-priced location in the lower 48 States as of yesterday.
The somewhat unusual weather patterns this week likely contributed to the increase in total demand. With significant temperature swings occurring across the country this week, both cooling and heating demand increased in many areas of the country. For example, in the Northeast and Mid-Atlantic States, average temperatures were high at the beginning of this report week, decreased over the weekend with the cold temperatures lingering into Monday, but then increased again by the end of the report week. As the demand for natural gas was attributable to both cooling and heating needs this week, residential and commercial demand rose more than 25 percent compared with last week, according to BENTEK Energy Services, LLC estimates. Total demand for the week ended May 12 rose by 4.5 percent compared with last week.
Total natural gas supply was slightly lower compared with the previous week, despite a jump in Canadian pipeline imports. Natural gas supply fell slightly this week compared with the previous week, driven by decreases in domestic production and liquefied natural gas (LNG) sendout of 0.6 percent and 6.3 percent, respectively, according to BENTEK estimates. Canadian imports increased by 3.2 percent on the week, with most of Canadian pipeline imports delivered to Midwestern markets. Imports of Canadian natural gas to the Northeast were 44 percent below the level for the same week last year. The decrease in pipeline imports into the Northeast is the result of a number of factors, including declines in Canadian production, an increase in U.S. domestic production, rising demand for natural gas in eastern Canada, and current ongoing maintenance at the Sable Island Offshore Energy Project. Recent analysis of flows at the Niagara delivery point reveals that total flows of natural gas from Canada to the United States are at a 5-year (2005-2010) low, with the pipeline utilization rate consistently remaining below 10 percent since April 1, 2010.
At the NYMEX, the price of the near-month contract for June delivery increased by 29 cents during the report week to $4.284 per MMBtu, reaching the highest daily settlement price in nearly 2 months. Similarly, prices for the remaining contracts in the 12-month strip (through May 2011) also all increased by between 19 and 28 cents per MMBtu, with the contracts for delivery during the summer months registering the largest increases. The 12-month strip increased 24 cents since last week, ending trading yesterday at $5.084 per MMBtu.
More Price Data
Working gas in storage totaled 2,089 Bcf as of Friday, May 7, according to EIA's Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection during the report week was 94 Bcf, bringing the current level of supplies in underground storage to 18.4 percent above the 5-year average (2005-2009). Net injections totaled 84 Bcf during the comparable week on average over the past 5 years and 94 Bcf for the comparable week last year.
The net injection of 94 Bcf is the largest net injection to date this year and matches the record-high volume injected for the first week of May established last year. The latest net injection pushed the volume of natural gas in storage to over 2,000 Bcf, the earliest storage inventories have reached this level during the injection season since EIA weekly storage data keeping began.
Temperatures for the country as a whole were close to normal for the week coinciding with the storage report, undoubtedly supporting the large build-up in inventories. This week's above-average injection occurred during a week when temperatures across the country were moderate, averaging 63.4 degrees compared with a normal average of 58.4 degrees. Each Census Division with the exceptions of the Mountain, Pacific, and West North Central recorded temperatures that were above normal, with deviations ranging between 2 and 11 degrees. The New England and Middle Atlantic Census Divisions registered the largest weekly temperature deviations from normal at 11 degrees. However, the South Atlantic Census Division recorded the highest weekly average temperatures (see Temperature Maps and Data).
More Storage Data Other Market Trends EIA Expects Industrial and Electric Power Sectors to Contribute to Natural Gas Consumption Increase in 2010. EIA released its latest Short-Term Energy Outlook (STEO) on May 11, which projects that U.S. natural gas consumption will increase by 3 percent to 64.4 Bcf per day in 2010. The increase is expected to occur as a result of higher consumption mainly in the industrial (5.4 percent) and electric power (3.9 percent) sectors, despite higher natural gas prices in the first quarter of 2010 compared with year-prior levels. The STEO projects a slight decline in total natural gas consumption of 0.4 percent in 2011, as the predicted return of near-normal weather will likely reduce residential and commercial consumption. However, the STEO predicts industrial consumption will increase by 1.3 percent in 2011, likely as a result of continued economic growth. According to the latest STEO, the Henry Hub natural gas spot price is expected to average $4.48 per MMBtu in 2010 and $5.34 per MMBtu in 2011. U.S. marketed production is expected to increase by roughly 0.8 Bcf per day to 60.7 Bcf per day in 2010 and decrease by 0.3 Bcf per day or 1.2 percent in 2011. The STEO notes that the April 20 explosion aboard the Deepwater Horizon drilling rig in the Gulf of Mexico, situated about 50 miles off the Louisiana coast, has not significantly affected energy production, shipment, and prices.
AEO Forecasts Shale Production Will Contribute to Growth in Natural Gas Production. On May 11, 2010, EIA released the 2010 Annual Energy Outlook (AEO), which analyzes U.S. energy supply, demand, and prices through 2035 and forecasts these values under a variety of assumptions. Under the reference case, which assumes baseline economic growth of 2.4 percent over the next 25 years, EIA predicted that robust growth in the production of natural gas from shale formations will drive increases in total natural gas production. EIA projected that shale gas and coalbed methane resources will account for 34 percent of total U.S. production in 2035, compared with 17 percent in 2008. Under the reference case, most of the growth would be attributable to shale production, while coalbed methane production is expected to remain relatively stable. The AEO noted that a number of efficiency gains in producing and bringing shale gas to markets would facilitate growth. The increases in shale resources will help meet additional demand for natural gas in the coming 25 years, according to the AEO.
Response to the Deepwater Horizon Oil Spill Ongoing. The U.S. Government continues to respond to the oil spill following the April 20 explosion aboard the Deepwater Horizon mobile offshore drilling unit. The rig was located about 50 miles southeast of Venice, Louisiana. Since the explosion, more than 4 million gallons of crude oil have spilled into the Gulf of Mexico. Some of the latest facts according to a May 12 report of the Administration-wide response include:
- The U.S. Minerals Management Service (MMS) has approved a new containment device to mitigate the spill. The "top hat" shaped containment vessel was lowered into the ocean on Tuesday.
- More than 1.5 million feet of boom have been deployed to contain the spill, and an additional 1.4 million feet are available.
- More than 475,000 gallons of dispersant have been deployed, and an additional 120,000 gallons are available.
- The spill has not significantly affected energy production in the Gulf of Mexico.
- Secretary of Energy Steven Chu and Secretary of the Interior Ken Salazar traveled to Houston, Texas, this week to meet with DOE and national lab staff, industry officials, and others to determine additional methods for stemming the oil spill.
Natural Gas Transportation Update
- Midcontinent Express Pipeline, LLC (MEP) on Wednesday, May 12, reported that several sections of buried pipeline had unexpectedly shifted along its right-of-way. According to the company, pipeline sections had moved upward, above the required depth, as a result of abnormal and unprecedented rain storms and subsequent flooding. As a result, MEP will begin a project this weekend to excavate and lower the pipeline back to the required depth. The affected sections of pipeline are located in Madison Parish, Louisiana. Effective gas day Saturday, May 15, 2010, all Zone 2 delivery points, located on the eastern portion of the pipeline in Louisiana and Mississippi, will be unavailable until the remediation is complete, likely by Monday, May 24. MEP's throughput capacity on Zone 2 is 1 Bcf per day and typically flows at full capacity to interconnecting pipes, according to BENTEK. However, MEP has negotiated temporary delivery capacity expansions in its Zone 1 with several interconnecting pipelines.
- Mississippi River Transmission Corporation (MRT) this week announced it will undertake unplanned maintenance at its Fountain Hill Compression Station in Ashley County, Arkansas. MRT will shut in the station along with associated pipeline facilities for a 24-hour period between May 19 and May 21. During this period, MRT's injection capability at its Unionville storage field in Lincoln Parish, Louisiana, will be unavailable. In addition, MRT may not schedule any volumes that result in a daily long position during the 24-hour shut-in.
- Gulf South Pipeline on Tuesday, May 11, began unplanned maintenance at its Bistineau compressor station in Bienville, Louisiana, which will continue for approximately 3 weeks. According to the company, injection capacity at the company's nearby Bistineau storage facility could be reduced by as much as 75,000 decatherms during the maintenance.
- Algonquin Gas Transmission Company (AGT) this week announced it will be conducting pipeline investigations through May 22 on parts of its system in Rhode Island and southeastern Massachusetts. The U.S. Department of Transportation mandates these investigations, and will require AGT to lower its operating pressure in certain sections to 575 pounds per square inch during the investigations. The pipeline cautioned customers not to receive more gas than scheduled, which may cause delivery pressures to reach lower-than-desired levels.
See Natural Gas Analysis for additional Natural Gas Reports and Articles.
See Short-Term Energy Outlook for additional Natural Gas Prices, Supply, and Demand.