Overview (For the Week Ending Wednesday, May 20, 2009)
Natural gas spot prices fell by large amounts at all trading locations in the Lower 48 States, reversing the increasing trend that began in the beginning of May. The average decline in spot prices between May 13 and May 20 was 62 cents, and declines ranged between 8 percent and 22 percent. Prices fell this week as a result of mild weather across the country, resulting in weak natural gas demand for heating and for power generation for cooling. The Henry Hub price fell by 67 cents to $3.75 on Wednesday, May 20, from $4.42 the previous Wednesday, a 15 percent decline. At other trading locations in Louisiana, declines in prices ranged between 59 and 68 cents. Since early February, prices at the Henry Hub have remained between $3 and $5.
Generally, spot prices across the Lower 48 were between $3 and $4 per MMBtu, with higher prices in the Northeast and Florida. The average price in the Northeast was $4.15 per MMBtu. Additionally, at the Florida Gas Transmission Citygate trading area, the only trading area for which data are collected in Florida, the average price was $4.22 per MMBtu as of yesterday. Prices have recovered somewhat from lower levels in April, when prices at many trading locations fell below $3 per MMBtu. However, in the Rocky Mountain region, prices were $2.93 per MMBtu on average yesterday.
The largest regional price declines for the week occurred in the West Texas, California, and Arizona/Nevada. West Texas prices fell by an average of 78 cents, or 19 percent; Arizona/Nevada prices fell by 77 cents, or 19 percent; and California prices fell by an average of 73 cents, or 18 percent. The smallest declines occurred in the Northeast, falling on average 56 cents or about 12 percent. The relatively low prices could eventually recover, as the declining rig count is expected to reduce production. Baker Hughes Incorporated reported that the natural gas rotary rig count fell to 728 as of Friday, May 15, the lowest level in more than 6 years.
On the NYMEX, the near-month contract dropped to $3.97 per MMBtu as of Wednesday, May 20. The NYMEX June 2009 contract closed $0.363, or about 8 percent, lower than the level on the previous Wednesday. At $3.97 per MMBtu, the contract had edged up slightly from its low for the week of $3.914, the closing price on Tuesday, May 19. Despite the declines on the week, the June 2009 contract has risen by about $0.567, or almost 17 percent, since the beginning of its tenure as the near-month contract. On the other hand, the June 2009 contract is trading at 62 percent lower than its level one year ago, when it closed at $10.553 per MMBtu on May 20, 2008. The value of the 12-month strip (the average of the 12 contracts between June 2009 and May 2010) fell on the week from $5.401 to $5.186, a drop of $0.215, or 4 percent. Contract prices for delivery during the upcoming summer months posted the largest declines, with all contracts from June 2009 to September 2009 posting declines of more than 30 cents.
Working gas in storage increased to 2,116 Bcf as of Friday, May 15, following a net injection of 103 Bcf (see Storage Figure ). Natural gas in storage is now 514 Bcf, or 32.1 percent, higher than the level of 1,606 Bcf recorded 1 year ago, and 387 Bcf, or 22.4 percent, higher than the 5-year average (2004-2008) of 1,729 Bcf. The 103 Bcf implied injection exceeds both the injection of 86 Bcf in the same week last year, and a 5-year average injection of 90 Bcf.
Mild temperatures during the report week likely contributed to the strong storage injection. According to degree-day data for the Lower 48 States collected by the National Weather Service, temperatures were slightly warmer than normal. Average temperatures were 2 degrees warmer than normal and 1 degree warmer than last week. The average temperature for the United States as a whole was 62.7 degrees, and regional averages for the week ranged from 56 degrees in the New England Census Division to 76 degrees in the West South Central Census Division. (see Temperature Maps and Data )
Other Market Trends
EIA Releases an Analysis of the Effects of Lower Natural Gas Prices on Power Generation. The Energy Information Administration on May 12 released a supplement to the Short-Term Energy Outlook (STEO), The Implications of Lower Natural Gas Prices for Electric Generators in the Southeast . The analysis found that current natural gas prices, which have fallen dramatically over the last year, increase the potential for displacing coal-fired power generation with natural-gas-fired generation. The report noted that natural gas prices do not need to fall as low as coal prices before substitution with natural-gas-fired generation becomes economical, as combined cycle natural-gas-fired electricity generators are generally more efficient than coal-fired generators. Additionally, the delivered cost of coal is likely to be higher in the Southeast than in other areas of the United States because of higher costs associated with transporting coal from coal-producing regions such as the Powder River Basin, located in Montana and Wyoming. The report noted that a drop in the average delivered natural gas price from $4.75 to $4.25 in the East South Central and South Atlantic Census Divisions could boost natural gas consumption for baseload power generation in the electric power sector by 2.1 billion cubic feet (Bcf) per day in the two regions. However, EIA noted that the analysis results are uncertain, as factors other than natural gas and coal prices have the potential to affect power generation. Contractual obligations, natural gas pipeline capacity constraints, and the availability of natural-gas-fired combined cycle generation capacity could affect the ability of the electric power sector to switch fuels.
U.S. Energy-Related Carbon Dioxide Emissions Declined by 2.8 Percent in 2008. According to preliminary estimates issued May 20 by the Energy Information Administration (EIA), carbon dioxide emissions from fossil fuels fell from 5,967 million metric tons of carbon dioxide (MMTCO2) in 2007 to 5,802 MMTCO2 in 2008, the largest decrease since EIA began reporting emissions data. According to U.S Carbon Dioxide Emissions from Energy Sources 2008 Flash Estimate , high energy prices in the summer of 2008 as well as the economic downturn in the second half of the year led to the decrease in emissions. Energy consumption declined by 2.2 percent, although Gross Domestic Product (GDP) grew by 1.1 percent in 2008. Carbon dioxide emissions per unit of GDP fell by about 3.8 percent. Energy-related carbon dioxide emissions account for more than 80 percent of U.S. greenhouse gas emissions. Transportation-related emissions, accounting for roughly one-third of total energy-related carbon emissions, fell by 5.2 percent during 2008 and emissions from the residential sector fell by 1.1 percent. While heating degree-days were higher in the winter, the summer was cooler, offsetting the increase in heating demand.
Natural Gas Transportation Update