Natural gas spot prices increased in all trading regions in the Lower 48 States this report week (WednesdayWednesday, March 26April 2). During the report week, the Henry Hub spot price increased $0.34 per million Btu (MMBtu) to $9.59. Frigid temperatures continued for a portion of the week in the Northeast and for most of the week in the West, likely boosting space-heating demand.
At the New York Mercantile Exchange (NYMEX), prices for futures contracts also registered increases, albeit less than in spot markets. The futures contract for May delivery rose about 15 cents per MMBtu on the week to $9.832.
With the traditional heating season not quite over, natural gas withdrawals from underground storage continued through last week. As of Friday, March 28, working gas in storage was 1,248 billion cubic feet (Bcf), which is 0.5 percent above the 5-year (2003-2007) average.
West Texas Intermediate (WTI) crude oil continued to trade at prices above $100 per barrel during the report week. However, for this report week, the price decreased $1.00 per barrel, trading yesterday at $104.83 per barrel or $18.07 per MMBtu.
In the Northeast, the average price yesterday was $10.47 per MMBtu, which was 53 cents higher than the previous Wednesday. Significant variability in pricing existed for much of the report week, including increases exceeding $0.40 per MMBtu each day at several market locations on Monday, March 31, and Tuesday, April 1, in response to cold temperatures in the region. For the week, the average spot price for delivery in New York off Transcontinental Gas Pipe Line (Transco Zone 6 Non-NY) increased $0.75 per MMBtu, which was the highest net change of any trading location in the region. As of April 2, the price for natural gas in New York off Transco was $10.69, a premium of $1.10 per MMBtu more than the price received at the Henry Hub. This premium over the price at the Henry Hub is significantly lower than earlier this winter when prices at times exceeded $20 per MMBtu in the Northeast. The differential tends to lessen as seasonal heating requirements in the Northeast wane.
As measured by natural gas sendout at liquefied natural gas (LNG) import terminals, LNG imports continued to average less than 1 Bcf per day during the report week. Recent LNG imports are substantially lower than the volumes that moved into the U.S. market this time last year. LNG cargoes instead are heading to Europe and Asia, where buyers continue to purchase LNG at much higher prices than those that have prevailed in U.S. markets. LNG imports averaged about 800 million cubic feet (MMcf) per day for the month of March 2008, while they averaged 2.6 Bcf per day in March 2007. For this report week, the Trunkline LNG terminal in Lake Charles, Louisiana, reported low sendout volumes of regasified LNG (an average of 15 MMcf per day). Additionally, activity was limited at Dominions terminal in Cove Point, Maryland (with sendout averaging just 130 MMcf per day). Meanwhile, activity has not been affected as significantly at the Suez North America LNG terminal in Everett, Massachusetts, where sendout activity of more than 470 MMcf per day was reported. At the El Paso Corp.-owned Southern LNG terminal on Elba Island, Georgia, deliveries averaged about 230 MMcf per day, while Excelerate Energys Gulf Gateway facility located offshore Louisiana has not yet received any supplies in 2008.
Futures prices increased at the NYMEX, likely because of wintry weather in the Northeast and higher prices for competing products. The price of the near-month contract (for May delivery) rose $0.147 per MMBtu this week to $9.832 at the close of trading on Wednesday, April 2. The largest daily price movements this report week occurred Monday (when the price increased $0.30 per MMBtu) and Tuesday (when the price declined about $0.38). The current May contract price of $9.832 per MMBtu is $2.32 higher than the final May 2007 contract price of $7.508.
Recent high prices extend throughout the forward curve, suggesting prices are expected to remain elevated as industry begins rebuilding storage inventories for next years heating season, which will compete with summertime natural gas demand to fuel power generation for air-conditioning needs. Contracts for futures prices beyond the near-month contract all generally increased during the week. At the end of trading yesterday, the 12-month strip, which is the average for futures contracts over the next 12 months, was priced at $10.22 per MMBtu, an increase of about 9.8 cents since last Wednesday. Beginning with the May 2008 contract, forward prices increase steadily through the remaining months of 2008 and the beginning of 2009. The highest-priced contract in the forward strip is the January 2009 contract, which closed at $10.937 per MMBtu on April 2.
Working gas in storage decreased to 1,248 Bcf as of Friday, March 28, 2008, according to EIAs Weekly Natural Gas Storage Report (see Storage Figure). This report weeks implied net withdrawal of 29 Bcf is significantly higher than the 5-year average withdrawal of 2 Bcf for the week, reducing the difference between current inventories and the 5-year average level to just 6 Bcf or 0.5 percent. During the comparable week last year, when spring-like temperatures were more than 10 degrees warmer than this year, there was an injection of 35 Bcf. Nonetheless, this weeks report reflects changing storage activity with the occurrence (for the second week in a row) of net storage injections in the Producing Region (the only region so far this calendar year with net injections). Storage levels as of March 28 reflect a total drawdown of 2,297 Bcf so far this heating season from the high point of 3,545 Bcf as of November 2, 2007.
This weeks above-average withdrawal came during a week when it was colder than normal for the country as a whole, and significantly colder than normal in populous areas of the Midwest. Temperatures across the country were 6 percent lower than normal, as measured by National Weather Service heating degree-days (HDDs) for the week ended March 27. In the East North Central Census Division, which includes Chicago, the weather was 15 percent colder than normal, in terms of HDDs (see Temperature Maps and Data).
Other Market Trends:
EIA Releases a Report on Natural Gas Storage Drawdown Requirements. The Energy Information Administration (EIA) released a special report titled U.S. Storage Drawdown Analysis Report, which examines contract terms that require owners of natural gas in storage to reduce their inventories of working gas to specified levels by certain dates. According to the report, estimated maximum allowable working gas in storage at the end of the 2007-2008 heating season may be as low as 2,001 Bcf. Contractual agreements for natural gas owners to reduce their end-of-season (March 31) storage levels do not appear to be a major factor in aggregate end-of-season storage levels in the United States, because historical end-of-season working gas volumes have been lower than the volume allowed. The report also found that storage operators that impose limits on working gas volume tended to have larger facilities, with average capacity of 80 Bcf. Terms of service affecting end-of-season gas holdings affect 2,162 Bcf of the U.S. working gas capacity, where the allowable volume of natural gas in storage at the end of the season is less than 20 percent of the total working capacity. Thirty-four companies, accounting for 1,525 Bcf of working gas capacity, impose no restrictions to the volume of natural gas allowed in storage facilities at the end of the season.
EIA Updates Status of Retail Choice Programs. EIA has updated its website on the status of retail gas competition in each State with information through December 2007. Overall, 21 States and the District of Columbia have legislation or programs in place that let residential consumers and other small-volume gas users purchase natural gas from someone other than their traditional utility company. However, the availability and characteristics of these customer choice programs vary widely from State to State. According to the Web-based report, Natural Gas Residential Choice Programs, enrollment in customer choice programs reached a new high in 2007, increasing nearly 11 percent over the level in 2006, although the number of States with choice programs remained the same. Despite the overall increase, interest in customer choice seems to have waned in several States with long-standing programs. Overall, about 13 percent or about 4.6 million of the approximately 35 million residential natural gas customers with access to choice were buying natural gas from marketers as of December 2007, up from the 4.2 million participating in 2006. Most of the gains were in Georgia and the large gas-consuming States of Michigan, New York, and Ohio, where consumers have a choice of many marketers and numerous pricing options. The number of marketers providing services to residential customers increased or remained the same in all States but two, and the overall total was 11 percent more than in 2006 (91 vs. 82).
EIA Requests Comments on Proposed Data Collection. In an April 2, 2008, Federal Register notice, EIA is soliciting comments on proposed revisions and a 3-year extension of six surveys conducted by EIAs Office of Oil and Gas, Natural Gas Division. These surveys collect information on natural gas production, underground storage, processing, transmission, distribution, consumption by sector, and wellhead and consumer prices. The information collected in the surveys is used to support public policy analyses of the natural gas industry. Additionally, the statistics generated from the surveys are posted to the EIA website in a number of EIA products, including the Natural Gas Weekly Storage Report, Natural Gas Monthly, Natural Gas Annual, Short-Term Energy Outlook, Annual Energy Outlook, and Annual Energy Review. Minor changes are proposed to each of the surveys in the package, mostly to simplify and clarify the survey forms and instructions. Comments on the proposed revisions and extension are requested by June 2, 2008.
Natural Gas Transportation Update:
Southern Natural Gas Company reminded shippers that the Army Corps of Engineers began performing necessary maintenance on April 1 on the Mississippi River levee, downstream of the White Castle compressor station in southern Louisiana. The maintenance requires depressurization of both the 24- and 30-inch White Castle Franklinton Loop lines. During the outage, West Leg capacity will not be available through the White Castle compressor station and receipts upstream of the compressor station will not be scheduled unless shippers nominate a corresponding delivery point that is also upstream of the station. The outage is expected to last through April 6.
Enterprise Product Partners LP reported on March 28 that operations at its Pioneer cryogenic processing facility have been suspended following a release of natural gas and the resulting fire, which was restricted to a small area within the plant. The plant, which is located in Lincoln County, Wyoming, processes 550 million cubic feet per day of natural gas and extracts 26,000 barrels per day of natural gas liquids under normal operating conditions. Based on the information available at the time, Pioneer is expected to resume service in 2 to 3 weeks. Meanwhile, all gas volumes are being diverted to the companys adjacent silica gel gas-processing plant.
Mississippi River Transmission Corporation issued a system protection warning (SPW) effective April 2 as a result of cold weather conditions in its service territory, which stretches from Louisiana through Arkansas, Missouri, and Illinois. During the SPW, which will remain in effect until further notice, the pipeline will not schedule volumes that result in daily short positions and it will not schedule returns to shippers of previously parked natural gas under the park and loan service.
Florida Gas Transmission issued an overage alert day (OAD) resulting from high temperatures and low linepack for gas days April 1 and 2. The pipeline set the tolerance level for negative daily imbalances at 25 percent, indicating that there were no interruptions to previously scheduled interruptible transportation during the OAD.