Overview (For the Week Ending Wednesday, December 2, 2009)
Natural gas spot prices soared this week, following significant, albeit smaller decreases in trading the prior week. Spot prices rose at nearly all market locations in the lower 48 States by more than a dollar per million Btu (MMBtu). The only exception occurred at the Leidy location in the Northeast, which rose by 84 cents per MMBtu.
The Henry Hub spot price ended the report week at $4.67 per MMBtu, $1.35 per MMBtu higher than last Wednesday. Trading at the Henry Hub ended yesterday's session 14 cents higher than the January 2010 contract.
At the New York Mercantile Exchange (NYMEX), the natural gas futures contract for December delivery expired on November 24 at $4.289 per MMBtu. During its tenure as the near-month, the December contract fell by 58 cents or about 11 percent. The January contract posted similar decreases since becoming the near-month contract on Wednesday, November 25, falling by 63 cents or 12 percent. The January contract ended trading yesterday at $4.53 per MMBtu.
As of Friday, November 27, working gas in underground storage rose to 3,837 billion cubic feet (Bcf). The latest report marked the fourth injection for the month of November, the first time a net injection occurred for each week in November since 2001. Working gas stocks established new record levels in the West and Producing regions, as well as on a national level for the seventh consecutive week.
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The price of the West Texas Intermediate (WTI) crude oil contract declined by 63 cents on the week to $76.62 per barrel or $13.21 per MMBtu.
Rockies Express Pipeline's (REX) East leg remained under a force majeure during the report week, despite the completion of repairs to the ruptured section of the pipeline. REX-East has been out of service since November 14. The pipeline reported that it continues to test the pipeline prior to placing it back into service.
The total number of rotary rigs drilling for natural gas increased by 22, according to the latest Baker Hughes Incorporated data, following 2 weeks of decreases in the rig count. For the week ended November 25, the number of rigs drilling totaled 748.
The 2009 Atlantic Hurricane Season ended on Monday, November 30. According to the National Oceanic and Atmospheric Administration, 2009 has been the mildest hurricane season since 1997 (see Other Market Trends).
Price decreases leading up to Thanksgiving reflected the usual decrease in demand that generally occurs during a holiday week. A decrease in industrial demand and milder-than-normal temperatures in some areas of the country also drove price declines. According to Bentek Energy, LLC, total U.S. demand dipped during the Thanksgiving holiday and demand in all regions was lower than the week prior. Demand for natural gas has been slow to recover, although the onset of colder weather may spur some space-heating demand in the coming days, according to Bentek.
Natural gas spot prices increased dramatically since Wednesday, November 25, rising by an average of $1.36 per MMBtu. All trading locations in the lower 48 States recorded increases of over $1 per MMBtu, with the exception of the Leidy trading location, which rose by 84 cents. Price jumps followed significant decreases that occurred during the previous week. These declines were particularly evident immediately before the Thanksgiving holiday, when prices fell by an average of 42 cents for the week ended November 25. Prices rebounded this report week, with an average increase of $1.68 per MMBtu. The largest increases occurred at locations that transport natural gas into the Southwest, as well as a number of locations in the Rocky Mountain area. Both of these regions may have experienced price increases as a result of higher space-heating demand. In the Rockies, for example, temperatures dipped into the 20s and the weather remained cold during the week.
In sharp contrast from just a month ago, natural gas spot prices have risen, with each of the trading regions in the lower 48 States trading well above $4.50 per MMBtu. Trading locations serving the Northeast and California markets traded above the rest of the country for the week. Spot locations that serve markets in the Northeast are among the highest-priced in the lower 48 States, and have also registered some of the largest increases on the week. For example, the Algonquin Citygate price increased by $1.57 or 43 percent to $5.25 per MMBtu on the week. Spot locations in California all traded above $5 per MMBtu as of yesterday. The Pacific Gas and Electric location, which serves the southern portion of the State, ended the report week at $5.47 after it rose by $1.15 per MMBtu.
At the NYMEX, the expiration of the December 2009 contract last week marked the second time a contract for delivery during the heating season closed below $5 per MMBtu since 2003. The December 2009 contract expired on November 24 at $4.468 per MMBtu, $2.402 per MMBtu lower than the December 2008 contract. During its tenure as the near-month, the December 2009 futures contract posted a net decrease of 58 cents or 11 percent, consistently trading below $5 per MMBtu since the beginning of November. The December 2009 contract decreased in each of the first 3 weeks of trading as the near-month, but rose in the last week by 23 cents or 5 percent.
The price of the January 2010 contract declined during the holiday-shortened report week, falling by 63 cents or 12 percent since Wednesday, November 25, its inaugural day as the near-month contract. After ending the first trading day at $5.163 last Wednesday, the January 2010 contract has decreased in each trading session since then. The contract ended the report week at $4.530 per MMBtu. In yesterday's session, the 12-month strip traded at $5.047 per MMBtu, declining 54 cents or 10 percent since last Wednesday. As of yesterday, each of the contracts for delivery through July 2010 traded well below $5 per MMBtu, possibly reflecting market expectations of ample supply of natural gas over the next 7 months and beyond.
More Price Data Storage
Working gas in storage increased to 3,837 Bcf as of Friday, November 27, according to EIA's Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection of 2 Bcf for the report week sharply contrasted with both the 5-year (2004-2008) average net withdrawal of 43 Bcf and last year's net withdrawal of 64 Bcf, thus establishing a new record high for the lower 48 States. Working gas inventories are 470 Bcf higher than year-ago levels and 487 Bcf above the 5-year average level.
The latest net injection was the fourth net injection for the month of November, marking the first time a net injection occurred for each week of November since 2001. Working gas stocks established new record levels in the West and Producing regions, as well as on a national level for the seventh consecutive week. Working gas inventories in the East posted the second net withdrawal of the heating season at 7 Bcf, which followed last week's net withdrawal of 2 Bcf. Following the latest net injection, working gas stocks in the lower 48 States continue to approach the estimated peak capacity of 3,889 Bcf. As of the latest report, working gas stocks were at 99 percent of the estimated peak capacity, and at 89 percent of the working gas design capacity. EIA published its latest estimated peak and working gas capacity in April 2009 in the Estimates of Peak Underground Working Gas Storage Capacity in the United States, 2009 Update.
The net injection partly occurred as a result of milder-than-normal weather in much of the country for the week ended November 26. In the United States as a whole, temperatures were 21 percent warmer than normal, as measured by heating degree-days(see Temperature Maps and Data). The average temperature in the country was 48 degrees, which was higher than both normal (43 degrees) and last year (38 degrees). Each of the Census Divisions recorded temperatures that were warmer than normal. The Census Divisions in the Northeastern and Midwestern part of the country recorded the highest temperature deviations from normal, between 7 and 9 degrees. The warmer-than-normal temperatures were also reflected in the smaller-than-average withdrawal in the East region, which posted a 7 Bcf net withdrawal. The net withdrawal for the week of 7 Bcf in the East region was significantly below last year's withdrawal of 59 Bcf and the 5-year average withdrawal of 30 Bcf for the region.
More Storage Data Other Market Trends
Marketed Production Declined by 2 Percent in September. EIA released the November 2009 Natural Gas Monthly on Monday, November 30, which includes data for September 2009. Marketed production for the first three quarters of the year totaled 16,471 Bcf, according to the report. This compares to 15,870 Bcf for the first three quarters of 2008. Marketed production of natural gas dropped in September to 59 Bcf per day, a decrease of about 2 percent from August levels of 60 Bcf per day. However, production for the month of September was at its highest level since 1973. Additionally, marketed production was about 14 percent higher than the 5-year (2004-2008) average for September. Delivered volumes of natural gas fell by 7 percent to 47 Bcf per day from August to September, largely because of a significant decline in natural gas deliveries to electric power plants. Industrial consumption increased slightly from the previous month, while residential consumption increased almost 10 percent, which is consistent with the typical seasonal pattern. Despite month-to-month decreases, total consumption in September was about 4 percent above the 5-year average, likely as a result of long-term increases in use of natural gas for electric power generation. The average wellhead price in September was $2.92 per thousand cubic feet (Mcf), the lowest level since August 2002. The September 2009 price fell about 7 percent from August 2009 levels of $3.14 per Mcf. Additionally, the September 2009 price is almost 60 percent lower than September 2008 levels of $7.27 per Mcf.
Global Market for Natural Gas Creates New Patterns in LNG Flows. Traditionally, natural gas markets have operated as separate regional markets in different parts of the world. However, a global natural gas market has begun to emerge during the last decade. This development is likely the result of the growth of the liquefied natural gas (LNG) industry and of spot gas markets, especially in northwest Europe and North America. In particular, the arbitrage of price differences between the United States and Europe across the North Atlantic has become possible.
Trans-Atlantic arbitrage has been evident on several occasions. When Henry Hub prices rose above United Kingdom National Balancing Point (NBP) prices in late 2005 and mid-2007, LNG cargoes sailed to the Lake Charles LNG terminal in Louisiana, not to the United Kingdom. Similarly, when NBP prices surpassed Henry Hub prices during the winters of 2007-2008 and 2008-2009, U.K. LNG imports rose at the expense of Lake Charles.
Other new market patterns are also evident. During the price run-up of mid-2008, very little gas went to either the United Kingdom or Lake Charles, largely because most available cargoes were diverted to Asian markets where prices were relatively higher. Under those conditions, U.S. and U.K. prices diverged, as no cargoes were available to arbitrage the difference. Today, increased availability of LNG has helped restore arbitrage opportunities and contributed to substantial price convergence across the Atlantic.
The differential between Henry Hub and NBP prices began moderating in spring of 2009. Between March and November, the average monthly premium between U.K. and U.S. prices ranged between 3 cents in October to 81 cents in November, when prices at the Henry Hub averaged $3.68 per MMBtu, compared to $4.49 per MMBtu at the NBP. The convergence of prices contrasts sharply with the time between August 2008 and February 2009, when the average monthly U.K. price was between $1.98 and $5 per MMBtu greater than the U.S. price.
NOAA Reports 2009 Atlantic Hurricane Season Less Severe than Predicted. The National Oceanic and Atmospheric Administration (NOAA) released a report entitled Slow Atlantic Hurricane Season Comes to a Close on November 30, which recounts the 2009 Atlantic Hurricane Season. According to the report, the 2009 season had the fewest named storms and hurricanes since 1997. El Niño produced strong wind shear across the Caribbean Sea and western tropical Atlantic, resulting in fewer and shorter-lived storms. Of the nine named storms that formed this year, three evolved into hurricanes, and two were major hurricanes (Category 3 strength or higher). The number and severity of the storms is less than NOAA's August predictions of 7 to 11 named storms, 3 to 6 hurricanes, and 1 to 2 major hurricanes. On average, during a hurricane season there are 11 named storms and 6 hurricanes, which generally include 2 major hurricanes. This winter, El Niño is expected to reach peak strength and likely will continue into the spring. However, according to NOAA, it is too early to make any predictions as to the strength of the El Niño event for the 2010 Atlantic Hurricane Season.
- Northern Natural Gas Company on Wednesday, December 2, lifted a series of restrictions concerning imbalances on its pipeline system. The company cited significantly colder weather in its service territory as a primary factor influencing its decision to allow shippers more flexibility to balance nominations and receipts. The pipeline company on November 10 instituted a System Underrun Limitation (SUL), a system-wide restriction on shippers receiving less supply than they had nominated. The company instituted the SUL because its higher-than-average storage inventories, as well as high linepack on the system.
- Tennessee Gas Pipeline Company on Wednesday, December 2, revealed the discovery of a leak on its pipeline near Victoria, Texas. As a result of necessary maintenance, the pipeline company will shut in two meters on its Fidelity Line 8A-300 lateral. Although the company allowed shipper nominations at the two meters to remain in place for Wednesday's gas day, it will reduce nominations to zero effective with the evening cycle for Thursday.
- Northwest Pipeline Company on Tuesday, December 1, said that it would implement tariff provisions for allocating supplies through its Roosevelt Compressor Station in Klickitat, Washington, as a result of required maintenance. The company said that nominations for supply through the station are exceeding the operational available capacity of 530,000 decatherms (Dths) per day by approximately 16,000 Dth per day.
- According to El Paso Natural Gas Company, maintenance will continue through December 20 at its Pecos River Compressor Station located in Eddy, New Mexico. The maintenance is resulting in a reduction in capacity of 385 million cubic feet (MMcf) per day. As a result, operating capacity through the compressor station is projected to remain at 825 MMcf per day.