Overview (For the Week Ending Wednesday, February 25, 2009)
* Natural gas spot prices continued to decrease this week. The return of frigid temperatures for much of the report week in the Northeast, Southeast, and part of the Midwest did little to support any upward price movements in these regions. In fact, spot prices at all trading locations covered by this report either decreased or remained unchanged.
* Spot prices in the Northeast dipped below $5 per million Btu (MMBtu) for the first time in more than 2 years.
* At the New York Mercantile Exchange (NYMEX) the near-month futures contract barely remained above $4 per MMBtu this week. The futures contract for March delivery expired yesterday at $4.056 per MMBtu, the lowest expiration for any near-month futures contract since the October 2002 futures contract closed at $3.686 per MMBtu.
* Natural gas in storage fell to 1,895 billion cubic feet (Bcf) as of Friday, February 20, with net withdrawals totaling 101 Bcf. Currently, the total volumes in storage stand 11.7 percent above the 5-year (2004-2008) average and 14 percent above last year’s level.
* In contrast to the natural gas prices, the West Texas Intermediate (WTI) average crude oil price posted robust gains on the week, rising $6.97 or 20.1 percent per barrel on the week. The WTI settled yesterday at $41.64 per barrel or $7.18 per MMBtu.
Despite the seasonably cold weather blanketing the region, spot prices in all trading locations in the Northeast decreased this week. This week’s regional average price decreased 23 cents per MMBtu to end the week at $4.68 per MMBtu. Last Wednesday (February 18) marked the first time the Northeast spot price average fell below $5 per MMBtu in more than 2 years. The largest price drop in the region of 37 cents per MMBtu occurred at the Transcontinental Pipeline’s Zone 6, which includes natural gas deliveries for as far north as New York City, trading yesterday at $4.81 per MMBtu.
The impact of the current recession outweighed the space-heating demand, as the lack of industrial and commercial demand continues to depress natural gas spot prices. The decreases in spot prices appear not to be weather driven, as some areas of the country are experiencing relatively cold weather, but still failed to register any price increases. Prices at every trading location with the exception of one (El Paso in South Texas, which remained unchanged Wednesday to Wednesday) fell this week. Prices everywhere finished the report week below $5 per MMBtu. Producing regions along the Gulf Coast with the exception of Louisiana ended the trading week with prices below $4 per MMBtu, while those in the Rocky Mountain, Midcontinent, and West Texas regions also ended the week below $3 per MMBtu.
While general weakness in the industrial sector persists, there were several announcements during the past 2 weeks indicating that some demand for natural gas used for fertilizer production may be coming back online. Terra Industries announced on February 13 that it has restarted its Woodward facility in Oklahoma, which had been idle since mid-December 2008. According to the company’s press release, Terra’s methanol, ammonia, and nitrogen plants have resumed operations. Mosaic Company also restarted its Faustina plant in Louisiana, while Agrium Incorporated reported that its Borger plant in Texas has resumed operations and begun producing ammonia and dry fertilizer. The Borger plant also was shut down in late 2008.
Much like the spot prices this report week, futures contracts trading at the NYMEX managed to break several recent price records during the report week, particularly the March 2009 contract. On Friday, February 20, the contract settled at $4.006 per MMBtu, the lowest price for daily settlement of any near-month contract in more than 6 years, after it broke the same record the day before. While the daily settlement prices for the March 2009 contract managed to stay above $4 per MMBtu, in its intraday trading it fell below the $4-mark several times on both the open outcry and the Globex. Yesterday (February 25) the March 2009 contract ended its tenure as the near-month contract, expiring at $4.056 per MMBtu, the lowest price since the October 2002 futures contract expired at $3.686 per MMBtu in September of that year. During its tenure as the near-month, the March 2009 contract fell $0.520 per MMBtu or 11.4 percent. On the week, however, it slid almost 16 cents or 4 percent per MMBtu.
Prices for the other futures contracts in the 12-month strip (April 2009-February 2010) also all decreased this week as well. The April 2009 contract fell 20.9 cents or about 5 percent to $4.029 per MMBtu. The remaining futures contracts in the 12-month strip fell between 12 and 21 cents per MMBtu, with price decreases for each successive month below that of the preceding month. Overall, the 12-month strip decreased 17 cents to $4.782 per MMBtu. Continued expectation of ample future natural gas supplies apparently contributed to the price weakness on the futures market. During the report week ended February 25, the futures prices reached levels not seen in years, despite signs of potential supply contraction such as the report announcing that natural gas rigs drilling for the week ended February 20 fell to 1,018, the lowest level in 3 years.
Working gas in storage decreased to 1,895 Bcf as of Friday, February 20, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net withdrawal of 101 Bcf was 30 percent lower that the 5-year (2004-2008) average withdrawal of 145 Bcf and about 36 percent lower than last year’s withdrawal of 157 Bcf for the same report week. This week’s below-average withdrawal further widened the differential between both the 5-year average and last year’s level to 199 and 233 Bcf, respectively. While the total net withdrawal this week was below the average and last year’s, the net withdrawal in the West Region exceeded both.
Temperatures in the Lower 48 States were normal for the week roughly coinciding with the storage report, but the likely drivers of the below-average withdrawal are the availability of significant volume of natural gas on the spot market and lower prices. The National Weather Service’s heating degree-day (HDD) data show that temperatures in the Lower 48 States during the week were normal, but about 6 percent higher than last year (see Temperature Maps and Data). The Mountain and Pacific Census Divisions, which roughly correspond to the West Region in the storage report, recorded temperatures that were 37 and 9 percent below normal. The only other region that posted below-normal temperatures for the week ended February 19 was the West North Central Census Division, where the average weekly temperature deviated from normal by only 1 degree Fahrenheit.
Other Market Trends
EIA Solicits Comments on Residential Energy Consumption Survey. The Energy Information Administration is soliciting comments on the proposed reinstatement and 3-year approval of the Residential Energy Consumption Survey (RECS). Comments must be filed by April 24, 2009. The RECS is a periodic survey of U.S. residential households aimed at collecting energy consumption and expenditures data and tracking changes over time. Data from the 2005 RECS, the most recent study, are available at EIA’s Residential Consumption web site home page. The 2009 survey questionnaires will remain relatively unchanged from the 2005 version, with no significant changes in content or methodology being proposed. Proposed changes include reinstatement of residential transportation items, revised wording, and changes to reflect new technologies or changes in energy usage. Respondents were asked to comment on proposed changes in a February 23, 2009, Federal Register notice.
NEB Issues a Report on Liquefied Natural Gas (LNG). On February 24, Canada’s National Energy Board (NEB) released the Energy Market Assessment, Liquefied Natural Gas, a Canadian Perspective, which provided an overview of LNG supply and demand, its potential trade prospects, as well as an overview of Canadian natural gas markets and energy infrastructure. Though many sectors of the global economy have shown signs of a recession, the recent decline is not anticipated to greatly affect the demand for more natural gas in the long term. In light of this, countries around the world are actively pursuing options to secure new sources of natural gas, and LNG is one. According to the NEB, LNG provides an option to diversify and enhance the reliability of natural gas supply, but ultimately market conditions, stakeholder involvement, and contractual arrangements will set the extent of LNG imports. Once considered the most likely source to offset the ongoing decline in the production of conventional natural gas, the expected increase in LNG imports has not materialized as anticipated in areas such as North America where shale gas and other unconventional natural gas resources have filled part of the supply gap. The only Canadian facility currently equipped to import LNG is the Canaport terminal, which is located in Saint John, New Brunswick. This regasification terminal will serve markets in Atlantic Canada and New England where LNG historically has provided up to 25 percent (184 Bcf) of the annual natural gas requirement. The Canaport terminal is expected to become operational in the next 6 months.
Natural Gas Transportation Update
* DCP Midstream Partners, LP, on Wednesday announced it would begin flowing gas through its East Texas Processing Complex at the Carthage Hub in Panola County, Texas. The complex had been shut down since February 13, following the rupture of a pipeline outside the property. The complex consists of five natural gas processing plants with a processing capacity of approximately 780 million cubic feet (MMcf) per day. Only one of the five plants at the complex was returned to service, but DCP said it will have full processing capacities for the entire complex over the next 30 days. Gulf South Pipeline Co., which transports supplies to the plant, said it anticipated being able to schedule up to 110,000 decatherms (Dth) in receipts Thursday. However, Gulf South warned in advance that it may shut in the plant until gas quality can be met.
* Questar Pipeline Co. announced that it will perform an upgrade at the Oak Springs Compressor Station in Carbon County, Utah, in March. Capacity through the compressor station will be reduced to 290,000 Dth per day during the maintenance, which will begin during the week of March 23, according to the pipeline company. Questar had originally scheduled a window of March 3-5, but postponed the work because of delayed arrival of critical equipment for the project. Capacity through Oak Springs is ordinarily 500,000 Dth per day.
* ANR Pipeline Co. said Wednesday it had completed engine maintenance at Sulphur Springs (IN) Compressor Station in Indiana. As a result, the pipeline company lifted all associated restrictions. ANR began the maintenance on Monday, February 23, at which time capacity through the compressor station was reduced to 343 MMcf per day from the ordinary capacity of 400 MMcf per day.