Overview (For the Week Ending Wednesday, December 16, 2009)
- Changes in natural gas spot prices this report week (December 9-16) reflected extremely cold weather conditions moving across the country. In response to varying levels of demand for space heating, spot prices increased east of the Mississippi River but declined in the West. During the report week, the Henry Hub spot price increased $0.30 to $5.57 per million Btu (MMBtu).
- At the New York Mercantile Exchange (NYMEX), prices for futures contracts also rose with expectations of higher demand in response to this month's trend of colder-than-normal temperatures. The futures contract for January 2010 delivery increased by $0.56 on the week to $5.462 per MMBtu.
- The level of working gas in underground storage fell 207 billion cubic feet (Bcf) to 3,566 Bcf during the week ending Friday, December 11, according to EIA's Weekly Natural Gas Storage Report. Inventories are 13.8 percent above the 5-year (2004-2008) average.
- The price of crude oil increased by $1.97 per barrel, or 2.8 percent, during the report week. The West Texas Intermediate (WTI) crude oil price ended trading on Wednesday at $72.64 per barrel or $12.52 per MMBtu.
More Summary Data Prices
With cold temperatures gripping much of the country for the first half of December, the heating season is well underway with large storage withdrawals and higher prices during peak demand periods. Following an increase of $0.30 per MMBtu during the report week, the price at the Henry Hub is trading near its highest level of 2009. The average Henry Hub price on Wednesday, December 16, was $5.57 per MMBtu, the highest price at this market location since January 13, 2009. During the report week, price changes at specific market locations depended largely on local weather conditions. Although the severe cold subsided in the West and portions of the Midwest this report week, temperatures dropped below normal in the Northeast. The result was general price decreases in the West and significant price increases in the East.
In the Northeast, prices rose significantly as temperatures dipped as much 10 degrees below normal. The price of natural gas for delivery into New York off of Transcontinental Gas Pipe Line (Transco) rose by $2.47 to $9.08 per MMBtu on the week. Similarly, prices at many market locations increased more than 20 percent as capacity into the Northeast was often limited to firm-service customers. In New England, including the Boston area, prices were significantly higher on the week. The price for deliveries off Algonquin Gas Transmission, for example, increased $1.59 to $8.23 per MMBtu. Deliveries of regasified liquefied natural gas (LNG) this week from the Northeast Gateway LNG facility, located in offshore Massachusetts, coincided with the higher prices in New England. These supplies were the first volumes from this facility since April. According to Bentek Energy LLC, flows from the import terminal were 380 million cubic feet (MMcf) on December 17, a record high for the facility.
In the West, natural gas spot prices decreased as extreme cold subsided and infrastructure conditions limited access to markets outside the region. For much of the week, Rockies Express Pipeline (REX) required unexpected maintenance, stopping flows east of the Wamsutter Compressor Station in Wyoming (see Transportation Update below). Despite increased flows on other pipelines that transport supplies to the east, such as Cheyenne Plains Gas Pipeline, prices in the Rockies decreased sharply at several locations in response to the constraint. For example, the price for supplies on the Questar Corporation system in Utah decreased $0.61 per MMBtu during trading on Friday, December 11, the day of the REX maintenance. On the week, the Questar price decreased $0.22 to $5.19 per MMBtu. Prices also declined significantly in the Northwest. At Sumas, Washington, where constraints on the Northwest Pipeline system likely affected market conditions, the price increased to $9.46 per MMBtu in trading last Thursday, December 10, which was the highest price recorded in the lower 48 States during the report week. However, the Sumas price declined as temperatures warmed, resulting in a weekly decrease of $0.25 to an average of $5.79 per MMBtu.
At the NYMEX, the price of the near-month contract for January delivery increased $0.56, or nearly 12 percent, during the report week to $5.462 per MMBtu. The increase occurred possibly in response to expectations of continued extreme cold in consuming regions of the country, thus increasing space-heating demand. The early cold has also reduced concerns regarding the abundance of natural gas in storage, which reached a record high this fall. Nonetheless, the January 2010 contract is trading much lower than the settlement prices of contracts for comparable months over the last 2 years. The January 2009 and January 2008 contracts expired at $6.136 per MMBtu and $7.172 per MMBtu, respectively.
The price of the 12-month strip, which is the average for futures contracts over the next 12 months, increased during the report week by $0.427 to $5.857 per MMBtu. With the exception of a very small decrease in the price of the March 2010 contract, prices in NYMEX futures contracts increase in relatively small increments through the entire 12 months of the strip. As a result, the highest-priced contract in the 12-month strip is for next December, which as of yesterday was $6.29 per MMBtu.
More Price Data Storage
Working gas in storage as of December 11 totaled 3,566 Bcf, following a net implied withdrawal of 207 Bcf during the report week(see Storage Figure) . The 207-Bcf withdrawal during the report week exceeds the 5-year (2004-2008) average withdrawal of 127 Bcf by 63 percent and last year's withdrawal of 116 Bcf by 78 percent. Despite the unusually large withdrawal during the report week, working gas stocks in the lower 48 States remain near record levels. As of December 11, working gas stocks were 433 Bcf, or 14 percent above the 5-year average. At 3,566 Bcf, working gas stocks still exceed the 5-year maximum of 3,530 Bcf reported for the end of the injection season, October 31, underscoring the relatively plentiful supplies remaining in storage for the upcoming peak heating demand months.
At 207 Bcf, the implied net withdrawal is the second largest withdrawal reported during December in the 16-year history of the Weekly Natural Gas Storage Report. Increased space-heating demand appears to be a significant factor in the relatively large withdrawal. Temperatures across the country were about 20 percent colder than normal, as measured by heating degree-days (HDDs) for the week ending December 10, according to the National Weather Service (see Temperature Maps and Data). Key markets for space-heating demand were considerably colder than normal. In the East North Central Census Division, which includes Chicago and other major population centers in the Midwest, HDDs were 13 percent above normal for the week ending December 10. In the Pacific region, HDDs were 46 percent above normal. This week's withdrawal marked the third time that the total net withdrawal exceeded the 200-Bcf threshold during the month of December. The all-time largest net withdrawal occurred during the report week for January 25, 2008, and totaled 274 Bcf.
More Storage Data Other Market Trends
EIA Projects Growth in Natural Gas Production Through 2035. EIA's Early Release of the 2010 Annual Energy Outlook (AEO) was published on December 14. According to the report, growth in natural gas from shale formations will drive an increase in domestic natural gas production from 20.6 trillion cubic feet (Tcf) in 2008 to 23.3 Tcf in 2035. Production from shale is expected to grow to 6 Tcf in 2035, more than offsetting a decline in conventional production. Natural gas prices at the Henry Hub are expected to drop from the 2008 level of $8.86 per MMBtu and remain between $6 and $7 (2008 dollars) between 2015 and 2025. In 2035, Henry Hub prices are expected to average $8.88 per MMBtu. The AEO projects a 14-percent increase in energy consumption between 2008 and 2035. Fossil fuel use as a share of total consumption is expected to drop from 84 percent to 78 percent over the same period, as reliance on imported oil diminishes and the use of biofuels becomes more prevalent. Natural gas and renewable power plants will comprise the majority of generation capacity additions, according to the AEO. Renewables are expected to show strong growth in the power generation sector, from 9 percent of generation in 2008 to 17 percent in 2035. However, despite growth in renewable energy, the AEO predicts that carbon dioxide emissions will grow at a rate of 0.3 percent per year, most of which is accounted for by the power generation and transportation sectors. Emissions in the reference case increase from 5,814 million metric tons in 2008 to 6,320 million metric tons in 2035. The AEO includes projections through 2035 and is based on a reference case assuming the use of technology that is current or reasonably expected to become available over the next decade. Additionally, the reference case does not include the effects of possible future policies. More information is available here: http://www.eia.doe.gov/oiaf/aeo/index.html. The full AEO will be released in March 2010.
Natural Gas Rotary Rig Count Increases to 757. The natural gas rotary rig count was 757 as of December 11, according to Baker Hughes Incorporated. The current count increased by 9 from the previous week. The number of natural gas rotary rigs has fallen about 40 percent since the beginning of 2009. The rig count has generally increased since the summer of 2009, following a steep decline beginning in fall of 2008. The horizontal rig count, which includes both oil and natural gas rigs, also increased during the week to 558, close to its level at the beginning of the year. The horizontal rig count has risen for the last 14 weeks, while the vertical rig count, which is currently at 412, has been oscillating over the past few months. However, the vertical rig count, which also includes both oil and natural gas rigs, generally appears to be increasing. Changes in the rig count generally lag changes in the Henry Hub spot price by several weeks or more (see Figure). However, those responses appear to be muted in recent months.
EIA Announces its 2010 Energy Conference. For the first time, EIA and the School of Advanced International Studies (SAIS) at Johns Hopkins University are hosting a major energy conference, 2010 Energy Conference: Short Term Stress, Long Term Change. Next year's conference will primarily focus on the economic recovery and its impact on energy, climate change policy, drivers of short-term energy prices, and regulating energy commodities. Among the issues the conference will examine are the changing outlooks for natural gas and biofuels, tracking gains in energy efficiency, smart grid investment and impacts, and the dynamics between energy and water. The conference will be held April 6-7, 2010 at the Ronald Reagan Building and International Trade Center, located in Washington, DC. Natural Gas Transportation Update
- Bentek Energy reported that the Anadarko-operated Independence Hub has zero nominations scheduled for today (December 17) and will remain at zero until next week. According to Bentek, Anadarko is conducting some scheduled maintenance to keep the platform running with optimal performance. Specifically, the company is working on the monoethylene glycol (MEG) and filtration systems to protect the underwater pipes from extreme cold. The company says it anticipates returning to normal run rates by early next week. Until then, the platform should be idle and flowing no gas.
- Rockies Express Pipeline (REX) declared a force majeure on Thursday, December 10, as a result of an immediate need for facility repairs in the vicinity if the Wamsutter compressor station in Sweetwater County, Wyoming. The company announced that the system would be interrupted on December 12 and expected repairs to be complete within 48 hours. However, in subsequent announcements, REX extended the repair completion date to December 15, when it lifted the force majeure. Bentek Energy estimated that the outage affected about 956 MMcf per day of flows.
- As a result of an unexpected incident that impaired the dehydration capability at its Totem storage facility, Colorado Interstate Gas Company declared a force majeure on December 7. The force majeure resulted in a reduction of withdrawal nominations to zero; however, injections were not affected. The pipeline lifted the force majeure on December 15 and reported that it expects the facility to return to service on December 17.
- Texas Eastern Transmission Company (TETCO) reported that it has experienced an outage at its Shermansdale, Pennsylvania, compressor station, which reduced the capacity of the line by 380 MMcf per day. Repair efforts to restore this compressor station to full capacity are underway. The pipeline did not report any impacts on scheduled volumes as a result of the outage.
- ANR Pipeline Company is performing maintenance at various locations along its Southeast Leg, located south of Eunice, Louisiana. As a result, a series of capacity reductions on the pipeline's Southeast Mainline will occur. From December 10-14, the company reduced capacity by 255 MMcf per day, leaving 1,144 MMcf per day available. From December 15-18, capacity will be reduced by 130 MMcf per day, and from December 19- 31 capacity reductions will total 70 MMcf per day.
See Weekly Natural Gas Storage Report for additional Natural Gas Storage Data.
See Natural Gas Analysis for additional Natural Gas Reports and Articles.
See Short-Term Energy Outlook for additional Natural Gas Prices, Supply, and Demand