Overview (For the Week Ending Wednesday, July 21, 2010)

  • Natural gas prices rose across market locations in the lower 48 States during the report week. The Henry Hub natural gas spot price rose 31 cents, or 7 percent, during the week, averaging $4.70 per million Btu (MMBtu) yesterday, July 21.
  • At the New York Mercantile Exchange (NYMEX), the price of the August 2010 natural gas futures contract for delivery at the Henry Hub rose about 21 cents, or 5 percent, ending the report week at $4.513 per MMBtu.
  • Working natural gas in storage increased to 2,891 billion cubic feet (Bcf) as of Friday, July 16, according to EIA's Weekly Natural Gas Storage Report.
  • The West Texas Intermediate (WTI) crude oil spot price fell about 75 cents per barrel during the report week, from $77.02 to $76.27 per barrel, or $13.15 per MMBtu.
  • According to Baker Hughes Incorporated, the natural gas rotary rig count totaled 979 as of Friday, July 16. The rig count increased by 15 compared with the previous week, marking the fourth consecutive week in which the natural gas rig count has risen.

 

NYMEX

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Prices

 

Natural gas prices increased across all market locations, as high temperatures continued to envelop most of the lower 48 States. Price increases likely resulted from warmer-than-normal weather across most of the country. While temperatures were warmer than normal in most of the lower 48 States, the southeast was especially hot, with temperatures averaging above 80 degrees through most of the region. On Wednesday, July 21, the natural gas spot price at the Henry Hub averaged $4.70 per MMBtu. Natural gas consumption for power generation increased 10 percent on the week and 24 percent compared with year-ago levels, according to estimates from BENTEK Energy Services, LLC. Prices generally remained highest in the northeastern United States, where average temperatures were in the 70s and 80s. The price yesterday for delivery into New York City, at Zone 6 off Transcontinental Gas Pipeline was $5.21 per MMBtu, an increase of 29 cents or 6 percent on the week.

The Florida Gas Transmission (FGT) Citygate pricing point registered the largest price increase on the week of $2.26 per MMBtu. Prices at the FGT Citygate averaged $8 per MMBtu yesterday, up from $5.74 per MMBtu at the beginning of the report week. This price jump in Florida was a clear outlier compared to the much smaller increases of between 8 cents and 41 cents that prevailed in the rest of the lower 48 States. Average temperatures in the 80s in Florida likely contributed to the price increases.

The supply/demand balance tightened this week, according to estimates from BENTEK. Total natural gas supplies rose less than 1 percent from the previous week, while total demand increased 4 percent from the previous week. Supply and demand were nearly at parity on Thursday, July 15, with supply totaling 67.2 Bcf and consumption totaling 66.4 Bcf, according to BENTEK estimates. Despite loosening slightly as the week progressed, the supply/demand balance has remained relatively tight. Domestic U.S. production and liquefied natural gas (LNG) imports fell 0.4 percent and 0.6 percent, respectively, from the previous week. However, a week-over-week increase of 8 percent in Canadian natural gas imports to the United States offset the decline in domestic production and LNG sendout, resulting in a small week-over-week increase in total supply. Canadian imports have increased 9 percent over year-ago levels. Much of the increase in natural gas consumption resulted from a 10 percent increase in power burn on the week. Although industrial consumption rose less than 0.5 percent on the week, consumption in this sector was about 7 percent higher than year-ago levels.

Spot

At the NYMEX, the price of the near-month (August 2010) contract rose about 21 cents to $4.513 per MMBtu. During its tenure as the near-month contract, the August 2010 contract posted a net loss of about 4 cents, but rose as high as $4.854 per MMBtu on July 1. The price of the 12-month strip, which is the average price for natural gas futures contracts over the next year, also increased during the report week, rising from $4.838 per MMBtu on July 14 to $4.933 per MMBtu on July 21. Of the contracts in the 12-month strip, the contracts for August, September, and October 2010 registered the largest price increases during the report week. During the week, the strip for the winter heating season (November 2010-March 2011) increased about 2 percent, from $5.027 per MMBtu to $5.11 per MMBtu.

 

Wellhead

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Storage

 

Working natural gas in storage increased to 2,891 Bcf as of Friday, July 16, according to EIA's Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection was 51 Bcf, compared with last year's net injection of 70 Bcf and the 5-year (2005-2009) average of 64 Bcf for the report week. Working gas inventories are currently 52 Bcf below year-ago levels and 261 Bcf above the 5-year average level. Since March 26, 2010, or for the last 17 weeks, working gas in storage has exceeded the 5-year average for this time of year in each of the three storage regions. While natural gas stocks remain significantly above historical levels, the surplus relative to the 5-year average has diminished in recent weeks, with this week marking the fifth consecutive week that the surplus has declined. The surplus relative to the 5-year average last peaked on May 7, 2010, at 325 Bcf. During this period, the surplus in the East region has declined for 11 consecutive weeks, falling from 145 Bf on May 7 to 37 Bcf as of July 16.

Temperatures were generally warmer than normal in each of the Census Divisions in the lower 48 States during the week ended July 15. Based on the National Weather Service's degree-day data, temperatures in the lower 48 States during the week ended July 15 averaged about 77.7 degrees, or about 2.4 degrees warmer than normal and 3.6 degrees warmer than last year at this time (see Temperature Maps and Data). Temperatures were warmest relative to historical levels in the New England and Middle Atlantic Census Divisions, ranging between 5 and 8 percent above normal levels. Temperatures in the West North Central and West South Central Census Divisions were within about 1 percent of historical levels. Elsewhere in the lower 48 States, temperatures were about 2 to 4 degrees, or 3 to 4 percent above normal.

Storage

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 Other Market Trends

EIA Estimates Effects of Energy Bill Implementing Cap-and-Trade System. On July 16, EIA released a report entitled Energy Market and Economic Impacts of the American Power Act of 2010, which summarizes EIA's estimates of the effects of the American Power Act (APA) on energy markets. Introduced in May 2010, the APA would establish a cap-and-trade system with the objective of reducing emissions from 2005 levels by 17 percent in 2020, 42 percent in 2030, and 83 percent in 2050. Under this system, each year regulated entities would be required to hold allowances or to offset credits that cover their direct and attributable emissions from the previous year. EIA's analysis focused primarily on the market impacts of this system, examining the effects under a number of different scenarios. Under the Basic case, the development and deployment of key low-emissions technologies, including nuclear, fossil with carbon capture and sequestration, and various renewable energy sources, occurs on a large scale without encountering any major obstacles. According to EIA's analysis, offsets are expected to account for about 57 percent of compliance in 2035 under the Basic Case. The electric power sector would contribute the majority of emission reductions, primarily by reducing the use of coal as a power generation source. EIA noted that natural gas generation would rise above baseline assumptions until 2027. Natural gas could play an important role in reducing emissions, according to the analysis, especially if deployment of lower-emitting technologies is more costly, limited, or delayed. EIA projects that electric power prices would increase as a result of APA over the forecast period. Although free allowances to utility companies somewhat mute price impacts through 2025, EIA projects that electricity prices would reach 12.8 cents per kilowatthour by 2035, or 26 percent above the level expected without the legislation. According to EIA, gross domestic product (GDP) also would fall relative to the baseline assumptions, as the bill would increase the cost of energy and reduce purchasing power. Under the baseline assumption, GDP is projected to rise from $14.3 trillion in 2008 to $27.4 trillion in 2035. Under the Basic Case, cumulative GDP losses would total $452 billion, or 0.2 percent. EIA's analysis also included a scenario similar to the Basic Case that assumes a shale natural gas resource base of 647 trillion cubic feet (Tcf), compared with 347 Tcf under baseline assumptions. The complete analysis is available here: http://www.eia.gov/oiaf/servicerpt/kgl/index.html.

Pennsylvania Regulators Fine Natural Gas Producers and Propose More Rigorous Well Regulations in Connection with June Well Blowout. The Pennsylvania Department of Environmental Protection (PADEP) on July 13 released an independent investigation identifying untrained personnel and failure to use proper well control procedures as the principal causes of a natural gas well blowout that occurred in Clearfield County on June 3. The blowout allowed natural gas and wastewater to escape from the well uncontrollably for 16 hours. PADEP issued $353,400 in fines to the operator of the well, EOG Resources, Inc., and $46,600 in fines to its contractor, C.C. Forbes LLC. PADEP also ordered the companies to take corrective actions. As a result of the investigation's findings, PADEP proposed amendments to State regulations to strengthen existing standards and prevent oil and gas migration. The new rules would require operators to pressure-test casings used in Marcellus Shale wells; to use a minimum of two pressure barriers during all post-hydraulic-fracturing operations; to use oilfield-grade cement when cementing wells; to test blowout preventer equipment immediately after installation and before use; and to file quarterly well inspections with PADEP to ensure structural integrity. In addition, the proposed amendments would clarify a drilling company's responsibility to respond to gas migration issues. On July 21, the Pennsylvania Environmental Quality Board announced that four public hearings will take place July 21-26, allowing the public to comment on the proposed regulations. More information regarding the actions against EOG and C.C. Forbes, as well as the proposed regulations, is available on PADEP's website.

     

     

     Natural Gas Transportation Update

    • Trailblazer Pipeline Company on Tuesday, July 20, said that unplanned maintenance at its Station 602 compressor station in Lincoln County, Nebraska will begin immediately. As a result, firm capacity through the station will be reduced from 945 million cubic feet (MMcf) per day to 747 MMcf per day. According to BENTEK Energy, flows for the past 30 days through Station 602 averaged 850 MMcf per day.
    • El Paso Natural Gas Company last week reported the continuation of restrictions related to flows on its Line 1102 in western Texas. El Paso continues to operate under pressure restrictions north of its compressor station in Amarillo, Texas. As a result, the pipeline is unable to physically transport gas north or south between compressor stations in Amarillo and Dumas, Texas. Transportation through this segment will be scheduled only to the extent that net nominations in both directions are approximately zero, the pipeline said. The pipeline now expects that portion of the line to be available at the beginning of October. El Paso also revealed several maintenance projects that will reduce San Juan Mainline capacity next month. The following reductions in capacity will occur: 305 MMcf per day on August 1-2, 4 and 6; 335 MMcf per day on Aug. 3 and 5; and 295 MMcf per day Aug. 7 through 27. The Mainline has an estimated base capacity of 2,800 MMcf per day.
    • Colorado Interstate Gas Company this week told shippers that one unit at its compressor station in Mocane, Oklahoma, will be out of service from July 26 to July 30 as a result of planned mechanical inspections. During this time, station capacity will be 29 MMcf per day. Firm capacity at Mocane is currently about 66 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.