Overview (For the Week Ending Wednesday, June 30, 2010)
- Since Wednesday, June 23, natural gas spot prices decreased across the lower 48 States, with declines of as much as $0.68 per million Btu (MMBtu). The Henry Hub natural gas spot price fell $0.37, or about 7 percent, averaging $4.53 per MMBtu in trading yesterday, June 30.
- At the New York Mercantile Exchange (NYMEX), the futures contract for August delivery at the Henry Hub settled yesterday at $4.616 per MMBtu, climbing by $0.24 or about 5 percent since the previous Wednesday. The futures contract for July delivery at the Henry Hub expired in trading on Monday, June 28, at $4.717 per MMBtu, climbing $0.39 per MMBtu during its tenure as the prompt-month contract.
- Natural gas in storage totaled 2,684 billion cubic feet (Bcf) as of June 25. The implied net injection for the week was 60 Bcf, compared with the 5-year (2005-2009) average net injection of 82 Bcf for the week. Nevertheless, working gas stocks remain about 12 percent above the 5-year average.
- The spot price for West Texas Intermediate (WTI) crude oil decreased by $0.31 per barrel since Wednesday, June 23, ending the report week at $75.59 per barrel or $13.03 per MMBtu.
Since last Wednesday, June 23, natural gas spot prices decreased at market locations across the lower 48 States, as temperatures fell and concerns about developing Hurricane Alex eased. Temperatures moderated across most of the lower 48 States as the week progressed, leading to declines in natural gas consumption. However, continued robust power demand and concerns about Tropical Storm Alex-the first named storm of 2010-progressing to hurricane status initially limited price declines through Tuesday, June 29. By midweek, falling power demand and the passing threat of Alex contributed to double-digit declines at most market locations across the lower 48 States in trading on Tuesday and Wednesday. Price decreases ranged up to $0.68 per MMBtu, with the Northeast and producing areas along the Gulf of Mexico posting the largest declines.
Natural gas spot prices at the Henry Hub are trading above year-ago levels. At $4.53 per MMBtu in trading on June 30, prices at the Henry Hub were nearly 22 percent, or $0.81 per MMBtu, higher than year-ago levels. Natural gas spot prices at most markets elsewhere in the lower 48 States were trading at about 12 percent to 52 percent above year-ago levels. Higher spot prices may reflect recovery in the industrial sector and increases in crude oil prices since last year. In trading on June 30, the WTI crude oil price exceeded last year's level of $69.82 per barrel, or $12.04 per MMBtu, by 8 percent.
Prices at the Florida Gas Transmission Citygate trading point posted the only net increase in the lower 48 States on the week, rising $0.04, or 1 percent, to $5.84 per MMBtu. Sustained warm temperatures in Florida likely contributed to increased cooling demand for natural gas, resulting in rising prices in the State. Prices at the Florida Citygate consistently have been the highest in the lower 48 States since an early heat wave in the first week of May. Prices at this point exceeded the next-highest-priced market location by $0.93 per MMBtu yesterday, June 30. At $5.84 per MMBtu, prices at the Florida Citygate are $1.80, or nearly 45 percent, above year-ago levels.
Total natural gas consumption in the lower 48 States for the week ending June 30 rose by 1.6 percent over the preceding week, despite significant declines in daily consumption as a result of falling temperatures. On the week, significant increases in total consumption in the residential, commercial, and power sectors more than offset declines in the industrial sector, according to BENTEK Energy Services, LLC. However, temperatures moderated as the week progressed, and contributed to falling demand in the lower 48 States, primarily in the power sector. By Wednesday, June 30, daily natural gas consumption had declined 15 percent compared with the preceding Wednesday, June 23, with the power sector and residential/commercial sector posting estimated declines of 23 percent and 17 percent, respectively. Industrial sector consumption decreased by an estimated 1 percent on the week, but remained 5 percent above year-ago levels. With moderating temperatures dampening natural gas demand as the week progressed, market tightness eased considerably, leading to price declines at the margin.
Natural gas supplies remained close to last week's levels, as increases in production and Canadian imports offset a decrease in liquefied natural gas (LNG) sendout. On the week, natural gas supplies were 0.5 percent above the preceding week's totals, exceeding year-ago levels by an estimated 1.4 percent, according to BENTEK estimates. Natural gas production increased an estimated 0.1 percent on the week, while Canadian imports rose 5 percent. Current levels of U.S. natural gas production and Canadian imports are an estimated 1.7 percent and 1.9 percent above last year's levels at this time, respectively. Canadian imports in the West region exceed last year's level by nearly 39 percent. Conversely, imports to the Northeast region are an estimated 39 percent below year-ago levels. Increases of 10.8 percent in the West and 11.9 percent in the Northeast regions on the week drove the overall weekly increase in estimated Canadian imports. LNG sendout declined by an estimated 2.5 percent on the week, and is 0.5 percent below year-ago levels.
At the NYMEX, the 12-month strip (or the average price of futures contracts from August 2010 through July 2011) averaged $5.07 per MMBtu in trading on Wednesday, June 30, falling $0.21 or 4 percent on the week. The price of the 12-month strip increased about $0.06 per MMBtu on Friday, June 25, possibly as a result of the potential tropical storm threat in the Gulf of Mexico. However, price declines in the 12-month strip on Monday, June 23, resulted in an overall net decline for the week, likely as a result of Tropical Storm Alex turning away from the producing areas in the Gulf of Mexico. Price decreases since last Wednesday were largest for the front months of the 12-month strip, with the contracts for delivery through January 2011 falling about 5 percent on the week, and prices for delivery in the ensuing months falling about 4 percent, on average. Natural gas futures prices for delivery during the remaining injection season months (July through October 2010) averaged $4.67 per MMBtu, decreasing about $0.24, on average, since last Wednesday. Meanwhile, prices for delivery during the heating season (November 2010 through March 2011) averaged $5.18 per MMBtu, increasing $0.24 on the week. The futures contracts for delivery during the heating season months (November 2010 through March 2011) traded at a premium of $0.74 to the Henry Hub spot price. This premium suggests the incentive for natural gas suppliers to replenish inventory levels of natural gas held in storage continues to persist.
Working natural gas in storage increased to 2,684 Bcf as of Friday, June 25, according to EIA's Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection was 60 Bcf, compared with last year's net injection of 73 Bcf and the 5-year (2005-2009) average of 82 Bcf for the report week. Relatively warm temperatures leading to increased consumption of natural gas in most regions of the lower 48 States likely contributed to the below-normal rate of injections into storage. As a result, working gas inventories are now 27 Bcf below last year at this time. However, working gas inventories exceed the 5-year average level by 287 Bcf, despite the below-average injections for the week. Working gas in storage exceeded the 5-year average for this time of year in each of the three storage regions, with the Producing region recording the largest surplus relative to the 5-year average of 123 Bcf. In the East and West regions, this surplus relative to the 5-year average totaled 72 Bcf and 91 Bcf, respectively.
Temperatures were generally warmer than normal in most Census Divisions in the lower 48 States during the week ended June 24. Based on the National Weather Service's degree-day data, temperatures in the lower 48 States during the week ending May 27 were, on average, about 3.3 degrees warmer than normal and 1.3 degrees warmer than last year (see Temperature Maps and Data). Temperatures were warmest in the East North Central, West North Central, West South Central, South Atlantic, and East South Central Census Divisions, where the average temperatures ranged between 81and 85 degrees. Elsewhere in the lower 48 States, average temperatures ranged between 65 and 76 degrees. In contrast to the rest of the lower 48 States, the Pacific Census Division reported cooler-than-normal temperatures.
Other Market Trends
Tropical Storm Alex Shuts in 14 percent of Natural Gas Production in the Gulf of Mexico. According to a statement the Bureau of Ocean Energy, Management, Regulation, and Enforcement (or BOEMRE, formerly the Minerals Management Service) released on June 30, offshore oil and natural gas operators in the Gulf of Mexico have evacuated 74 production platforms and 8 rigs in response to the threat of developing Hurricane Alex. These evacuations account for 12 percent of production platforms and 16 percent of rigs located in the Gulf of Mexico. BOEMRE estimates that the evacuation has shut in 919 million cubic feet (MMcf) per day of natural gas production, or about 14 percent of total natural gas production in the Gulf of Mexico. According to the National Hurricane Center (NHC), the storm was a Category 2 hurricane when it reached land in northeastern Mexico yesterday, June 30. However, NHC reported today, July 1, at 7 a.m. EDT that the hurricane has weakened to a tropical storm. BOEMRE will continue to update evacuation and shut-in statistics each day at 1 p.m. CDT until the figures are no longer significant. In addition, the U.S. Department of Energy's Office of Electricity Delivery and Energy Reliability released a Situation Report for Hurricane Alex today, July 1, detailing the impact of the storm on energy infrastructure in the region.
Tropical Storm Alex Delays BP Oil Spill Response Efforts. U.S. Coast Guard Rear Admiral Paul Zukunft stated during a press conference yesterday, June 30 that rough seas attributable to Tropical Storm Alex have hampered oil spill response efforts in the Gulf of Mexico, disrupting containment booms, forcing oil skimming ships to return to shore, and postponing containment efforts, such as conducting controlled burns and using dispersants. The storm has also delayed work on BP's floating riser containment system, the company's third containment system scheduled to begin operations in early July. Rear Admiral Zukunft stated that response efforts will likely resume July 3 or July 4. BOEMRE noted in its June 30 statement that neither the drilling rigs nor the containment vessels responding to the BP oil spill have been required to evacuate or halt operations.
Natural Gas Production Remains at a 36-Year High in April. On June 29, EIA released the June 2010 Natural Gas Monthly (NGM), which includes data through April 2010. According to the NGM, natural gas marketed production was 62.2 Bcf per day in April, marking the second consecutive month in which production rates were the highest since 1974. Gains in onshore production offset a month-to-month decline in Gulf of Mexico production, resulting in no net change in total marketed production. Total consumption of natural gas fell from 69.7 Bcf per day in March to 56.7 Bcf per day in April. Mild weather likely contributed to declines in residential and commercial consumption. The national average of heating degree-days was 271 in April 2010, compared with the 30-year normal of 345. Additionally, cooling degree-days totaled 41, compared with the 30-year normal of 30. Residential consumption fell 45 percent, from 19.5 Bcf per day to 10.8 Bcf per day, accounting for much of the month-to-month decline. Residential consumption also was at its lowest recorded level for April for the 37 years for which EIA data are available. Commercial consumption fell from 11.3 Bcf per day in March to 7.4 Bcf per day in April. Industrial consumption also declined from 18.7 Bcf per day in March to 17.4 Bcf per day in April. The only consuming sector to experience a month-over-month increase was the electric power sector, where consumption rose from 14.6 Bcf per day to 15.8 Bcf per day. April 2010 industrial consumption was only slightly below the 5-year (2005-2009) average for April of 17.9 Bcf per day. Natural gas prices at the wellhead dropped from $4.48 per MMBtu in March to $4.03 per MMBtu in April. Wellhead prices in April were about $0.50 per MMBtu higher than their level in April 2009. At 2,012 Bcf, working natural gas in storage was at its highest level for April since 1991.
Natural Gas Transportation Update
- With its current storage inventories at historically high levels for this time of year, Northwest Pipeline Company on Wednesday, June 30, announced that it will not accept requests for injections from certain classes of customers at its Jackson Prairie Storage Facility in Lewis County, Washington. According to the company, the restriction affects all customers with non-firm priority according to their contractual agreement. In addition, these interruptible customers are required to bring their balances to zero by July 12, the pipeline said.
- El Paso Natural Gas Company on June 30 said it had experienced a turbine failure at its compressor station in Gallup, New Mexico. According to El Paso, the C Station 34 unit at the station will require a complete overhaul after extensive internal damage. As a result, the company has reduced San Juan Basin/San Juan Mainline capacity by 295 MMcf per day during repairs. The unit is expected to be out of service through July. Under normal operating conditions, the compressor station has a throughput capacity of about 2,100 MMcf per day.
- ANR Pipeline Company (ANR) on June 24 initiated unplanned repairs at its compressor station in Marshfield, Wisconsin. These repairs will reduce Viking-Marshfield receipt capacity to 270 MMcf per day from a normal capacity of 305 MMcf per day. The pipeline company expected curtailments of flows under nonfirm contracts based on current nominations.
- With temperatures reaching the mid 90s in Florida, demand is rising for natural gas as a fuel for generating power to meet air conditioning needs. On June 24, Florida Gas Transmission (FGT) issued an alert to Florida customers instituting penalties for customers taking more than 20 percent more than nominated volumes. In addition, FGT will begin scheduled maintenance on July 7 at one of the two compressors at its interconnection with Tennessee Gas Pipeline in Carnes, Mississippi. FGT expects the maintenance to last 10 days, during which FGT will only schedule up to 30 MMcf per day at the interconnect. The normal capacity of the interconnect is 60 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.