Overview (For the Week Ending Wednesday, March 31, 2010)
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Natural gas spot prices posted net declines almost across the board, likely the result of the reduction in space-heating demand associated with the mild spring weather. At the Henry Hub, prices declined 9 cents to $3.93 per MMBtu. Earlier during the report week, the Henry Hub price dropped to $3.78 per MMBtu on March 30, its lowest level since November 25, 2009. Across the rest of the country, natural gas spot prices displayed a similar pattern, falling to lower levels before recovering somewhat by the end of the report week.
Spot prices ranged between $3.61 per MMBtu and $4.49 per MMBtu, with the highest prices generally in the Northeast United States, with an exception at the Pacific Gas & Electric (PG&E) pricing point in California. Prices in the Northeast generally remained higher than elsewhere in the country throughout the report week, though still posting a decline. Yesterday, for example, the highest price in the Northeast was at the Iroquois Zone 2 pricing point on the border of New York and Connecticut. Prices at this location ended trading at $4.42 per MMBtu on Wednesday, about 49 cents higher than the Henry Hub spot price. Similarly, at Transcontinental Pipeline's Zone 6 pricing point for delivery into New York City, prices settled at $4.25 per MMBtu yesterday. In some areas of Maine, Vermont, New Hampshire, and New York, temperatures for the week averaged in the upper 30s, while average temperatures in the rest of the Northeast were in the 40s, according to data from the National Oceanic and Atmospheric Administration. While these temperatures are slightly warmer than normal, households in the Northeast were likely still using natural gas for heating during the report week. While prices in the Northeast were generally higher than the rest of the lower 48 States, the PG&E Citygate in California was a notable exception. This spot price began the report week at $4.52 per MMBtu , declining to $4.49 per MMBtu yesterday.
Natural gas spot prices continue to move in the opposite direction of oil spot prices. The WTI crude oil price increased $3.16 per barrel to $83.45 per barrel, or $14.39 per MMBtu. While the Henry Hub spot price this week reached lows not seen in several months, yesterday the crude oil spot price hit its highest level since October 9, 2008. On a heat content basis, the ratio of the WTI oil spot price to the Henry Hub natural gas spot price was 3.7 yesterday. The ratio spiked to 5 in the late summer of 2009, but had since dropped back down to slightly more than 2. However, the ratio has been on the rise over the past several weeks (see Other Market Trends in the March 25 Natural Gas Weekly Update.).
At the NYMEX, the May 2010 natural gas contract settled at $3.869 per MMBtu. The May contract fell about 7 percent from its price on Wednesday, March 24, of $4.154 per MMBtu. The May contract became the near-month contract on March 30, after the April contract expired on March 29 at $3.842 per MMBtu. During its tenure as the near-month contract, the April contract fell almost 93 cents, or about 19 percent. The closing price of the April contract was the lowest price of a near-month contract since September 28, 2009. However, 1 year ago, the April 2009 contract closed slightly lower, at $3.631 per MMBtu. The 12-month strip (the average of the 12 contracts between May 2010 and April 2011) dropped from $4.795 per MMBtu to $4.642 per MMBtu, a decrease of about 15 cents or 3 percent.
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Working natural gas in storage rose to 1,638 Bcf as of Friday, March 26, according to EIA's Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection was 12 Bcf, compared with last year's net change of 0 Bcf and the 5-year (2005-2009) average withdrawal of 27 Bcf for the report week. Warming temperatures in most regions of the lower 48 States and sustained natural gas production likely contributed to the implied net injection during the report week. Working gas inventories are currently 160 Bcf above the 5-year average level and 16 Bcf below last year's level at this time.
Regionally, working gas stocks exceed historical levels in each of the three regions of the lower 48 States. On a regional basis, working gas in storage exceeded the 5-year average in the East, West, and Producing regions by 89, 63, and 8 Bcf, respectively. Compared with year-ago levels, inventories in the Producing region are 132 Bcf lower, while the East and West regions surpassed last year's level by 109 and 7 Bcf, respectively. The implied net change in each of the 3 regions exceeded the 5-year average for the report week. Net changes in working gas stocks exceeded last year's levels in the East and West regions, while the implied net injection in the Producing region was 6 Bcf less than last year's net injection of 21 Bcf.
Temperatures were generally warmer than normal in most Census Divisions in the lower 48 States during the week ended March 25. Based on the National Weather Service's degree-day data, temperatures in the lower 48 States during the week ended March 25 were, on average, about 3 degrees warmer than normal and 2 degrees warmer than last year (see Temperature Maps and Data). The New England and Middle Atlantic Census Divisions were particularly warm, where temperatures were 9 and 10 degrees warmer than normal, respectively. However, temperatures in the West South Central, East South Central, and Mountain Census Divisions were 6, 1, and 3 degrees colder than normal, respectively.
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Other Market Trends
DOE Confirms Existence of Resource-Quality Gas Hydrate in the Gulf of Mexico. In a report issued on March 30, the U.S. Department of Energy's Office of Fossil Energy confirmed that gas hydrate occurs in high saturations within reservoir-quality sands in the Gulf of Mexico. This finding is the initial result of an expedition that the National Energy Technology Laboratory conducted in May 2009. Gas hydrate is a solid substance comprised of natural gas in combination with water. Gas hydrate is thought to exist in great abundance in nature and has the potential to be a significant new energy source to meet future energy needs, according to the Office of Fossil Energy. Prior to this expedition, there was little documentation that gas hydrate occurred in resource-quality accumulations in U.S. waters. More information is available here: http://fossil.energy.gov/news/techlines/2010/10010-Hydrate_Expedition_Results_Availab.html and here: http://www.netl.doe.gov/technologies/oil-gas/FutureSupply/MethaneHydrates/JIPLegII-IR/
Natural Gas Consumption Reaches a Record in January. Delivered volumes of natural gas rose to 85.4 Bcf per day in January, according to the March 2010 Natural Gas Monthly (NGM). EIA released the March NGM on March 29, which includes data through January 2010. Natural gas consumption in January 2010 increased 14 percent from December 2009, reaching its highest average daily rate recorded in any month, over more than 37 years of data. While consumption increased across sectors, there was a substantial increase in residential consumption of 6.6 Bcf per day or 27 percent from December 2009. Volumes of natural gas delivered to commercial and industrial customers also were relatively high for January, at 16.6 Bcf per day and 20.2 Bcf per day, respectively. Commercial consumption was at its highest recorded level for the month of January, though in other months consumption has been higher. Industrial consumption was at its highest level since February 2008. An increase in U.S. heating degree-days (HDDs) was one of the drivers of the increase in consumption. HDDs rose to 931 in January, 81 HDDs above the 5-year (2005-2009) average of 850 for the month. This January, HDDs increased by 62 from the previous month. Wellhead prices rose from $4.44 per thousand cubic feet (Mcf) in December to $5.14 per Mcf in January. Prices rose across sectors, with the price for industrial consumers showing the most notable increase, rising from $5.97 per Mcf in December to $6.89 in January. At the end of January, working natural gas in storage totaled 2,319 Bcf, which exceeded the 5-year average of 2,189 Bcf by about 6 percent.
Natural Gas Transportation Update
See Weekly Natural Gas Storage Report for additional Natural Gas Storage Data.