* Since Wednesday, June 4, natural gas spot prices increased at most markets in the Lower 48 States, as a heat wave gripped much of the Lower 48 States. However, prices eased in trading yesterday (June 11) in response to moderating temperatures. Prices at the Henry Hub increased 32 cents per million Btu (MMBtu), or about 3 percent, to $12.49 per MMBtu.
* At the New York Mercantile Exchange (NYMEX), the futures contract for July delivery at the Henry Hub settled yesterday at $12.66 per MMBtu, rising 28 cents or less than 3 percent since Wednesday, June 4.
* Natural gas in storage was 1,886 billion cubic feet (Bcf) as of June 6, which is about 1 percent below the 5-year average (2003-2007), following an implied net injection of 80 Bcf.
* The spot price for West Texas Intermediate (WTI) crude oil increased $14.13 per barrel on the week to $136.43 per barrel or $22.52 per MMBtu.
Natural gas spot prices increased on the week (Wednesday-Wednesday) at most market locations, climbing between $0.13 and $1.02 per MMBtu, or between 1 and 11 percent. The price increases over the period likely can be attributed to hot temperatures and rising crude oil prices. As the heat wave subsided somewhat on Wednesday, June 11, prices eased at virtually all market locations; however, the declines were not sufficient to offset the earlier gains.
On a regional basis, prices exhibited considerable variability, increasing in most regions of the Lower 48 States with price hikes ranging between $0.20 and $1.02 per MMBtu. The largest regional price hike occurred in the Arizona/Nevada region, where 100-degreee temperatures contributed to an increase of $1.02 per MMBtu, or 10 percent, since last Wednesday, June 4. Prices in the West Texas region increased nearly 90 cents per MMBtu on average. Elsewhere, price increases since last Wednesday were less pronounced. Prices along the Gulf Coast rose between 20 and 29 cents per MMBtu, or 1.7 to 2.4 percent, above last week’s level. Prices in the Northeast region also rose about 2 percent on average, climbing 27 cents per MMBtu. Meanwhile, prices in the Midcontinent region gained 65 cents per MMBtu over last Wednesday’s level.
In contrast to the pattern of rising prices in the Lower 48 States, prices in the Rocky Mountains and Florida regions posted net declines on average for the week, falling 47 and 26 cents per MMBtu on average. Despite posting net decreases since last Wednesday, prices in both the Rocky Mountains and Florida regions climbed during most of the trading days in the week. However, in both regions, significant 1-day price declines contributed to cumulative decreases for the week that more than offset increases on most of the other 4 trading days. In the Rocky Mountains region, a high line-pack operational flow order (OFO) issued by Southern California Gas Company on Friday, June 6 (see Natural Gas Transportation Update), sent prices tumbling between $1.23 and $1.55 per MMBtu at most markets in the region. In Florida, prices climbed to a peak of $15.29 per MMBtu on Friday, June 6--the highest price reported in the Lower 48 States during the week--as cooling load contributed to high demand for natural gas. However, moderating temperatures on Wednesday, June 11, contributed to a 1-day price decline of $1.06 per MMBtu, as prices averaged $13.80 per MMBtu in trading.
At the NYMEX, the prices for natural gas delivery contracts through June 2009 climbed between 14 and 27 cents per MMBtu since Wednesday, June 4. Prices for the 12-month futures strip (July 2008 through June 2009) averaged $12.550 per MMBtu as of Wednesday, June 11, climbing about 22 cents per MMBtu, or about 3 percent. The 12-month futures strip traded at a premium of 6 cents per MMBtu relative to the Henry Hub spot price, while contracts for delivery next winter (December 2008 through March 2009) traded at an average premium of 93 cents per MMBtu relative to the spot price. Price differentials of this magnitude provide suppliers an economic incentive to inject natural gas into storage. However, the magnitude of the differential has decreased since earlier in the season with the increase in the Henry Hub spot price, which suggests that injection demand for natural gas may be contributing to the level of the current spot price.
Working gas in storage increased to 1,886 Bcf as of Friday, June 6, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection of 80 Bcf into working gas was 18 percent below the 5-year average net injection of 98 Bcf and nearly 18 percent below last year’s net injection of 97 Bcf for the same report week.
The relative size of the net injection likely reflected the weather in the Lower 48 States and the price differentials between the NYMEX futures prices and the current Henry Hub spot price. The National Weather Service’s degree-day data (Temperature Maps and Data) indicate that the Lower 48 States on average posted cooling degree-days 13 percent above normal levels. Average temperatures exceeded normal levels in every Census Division except for the Pacific Census Division. The relatively warm temperatures, especially in the Southeast Lower 48 States, indicate some cooling-related demand for natural gas that limited the size of the net addition to storage. The economic incentives to store natural gas for next winter are considerably less than last year, when the differential between the Henry Hub spot price and the futures contract prices for December 2007-February 2008 was approximately $2.10 per MMBtu.
Other Market Trends
EIA Releases June 2008 Short-Term Energy Outlook. The Energy Information Administration’s (EIA’s) latest Short-Term Energy Outlook (STEO) projects that the Henry Hub spot price will average about $11 per thousand cubic feet (Mcf) in both 2008 and 2009. The May 2008 price averaged $11.65 per Mcf, which was $1.16 per Mcf more than the average April spot price. The relative price increase was the result of lower imports of LNG, higher oil prices, and concerns about the adequacy of inventories. Total natural gas consumption is expected to grow by 2.2 percent in 2008, and then increase by another 0.9 percent in 2009. Increases in natural gas consumption in the residential, commercial, and electric power sectors have been driven mostly by the weather. In 2009, consumption in the residential and commercial sectors is expected to decline slightly, whereas the natural gas consumption for electric generation is expected to increase by 2.5 percent. Furthermore, natural gas in the industrial sector is expected to increase by 1.3 percent in 2008, followed by another 0.4 percent increase in 2009. Marketed natural gas production is projected to increase by 6 percent in 2008 and then again by 1.5 percent in 2009. Imports of liquefied natural gas (LNG) are expected to total about 530 Bcf in 2008, which is 240 Bcf less than the 2007 total, while the 2009 LNG imports are expected to reach about 850 Bcf.
EIA Releases Analysis of Potential Hurricane Impacts. The June 2008 STEO includes a supplemental report titled The 2008 Outlook for Hurricane Production Outages in the Gulf of Mexico, which includes highlights from the National Oceanic and Atmospheric Administration’s (NOAA) latest hurricane projections. These projections call for 12 to 16 named storms including 6 to 9 hurricanes, of which 2 to 5 will be intense during the upcoming hurricane season. According to the STEO supplement, the above-normal hurricane activity in the Atlantic is likely to result in increased impacts on offshore crude oil and natural gas producers in the Gulf of Mexico. Based on the results of a Monte Carlo hurricane outage simulation, which is conditional on how NOAA's most recent predictions for the level of Atlantic basin hurricane activity compare with historical activity, EIA expects a total of about 11.3 million barrels (bbl) of crude oil and 78 Bcf of natural gas to be shut in during the 2008 hurricane season. Actual shut-ins may differ significantly from this estimate depending on the number, track, and strength of hurricanes as the season progresses. Included in the report are three tables pertaining to possible shut-in’s and figures pertaining to production.
The Office of Fossil Energy Approves Application for Export of Alaska LNG. The U.S. Department of Energy’s Office of Fossil Energy (FE) approved an application for the continued export of LNG from the Kenai, Alaska, LNG export terminal for a period of 2 years. The application was submitted by both ConocoPhillips Alaska Natural Gas Corporation and Marathon Oil Company requesting permission to export up to 99 trillion Btu of LNG (the equivalent of 98.1 Bcf of natural gas) on a short-term or spot market basis from its facility near Kenai, Alaska, to Japan and/or one or more countries on either side of the Pacific Rim over a 2-year period from April 1, 2009, through March 31, 2011. In addition, FE has granted the applicant’s request to vacate the existing blanket authorization, issued in Order 1580, to export up to 10 trillion Btu of LNG from the Kenai facilities to international markets. The newly granted authorization (Order 2500) was issued on June 3 and can be accessed at http://www.fe.doe.gov/programs/gasregulation/authorizations/Orders_Issued_2008/ord2500.pdf.
Natural Gas Transportation Update
* Rockies Express Pipeline, LLC, (REX) on June 4 announced that it might be necessary to reduce scheduled quantities of natural gas through the Lost Creek Wamsutter receipt point in Sweetwater County, Wyoming, because of a gas quality problem. As of Thursday, June 12, REX has not reported whether the gas quality problem has been resolved.
* Southern California Gas Company (SoCal) declared a high-linepack operational flow order (OFO) for Saturday, June 7, setting the tolerance level for positive daily imbalances at 10 percent. Operating conditions, including receipts from SoCal’s shippers that exceeded deliveries to the customers, led to the OFO. An OFO is generally issued to alleviate conditions that threaten or could threaten the safe operations or system integrity of the transportation service provider's system, or to maintain operations required to provide efficient and reliable firm service.
* Florida Gas Transmission Company issued an overage alert day (OAD) for Friday, June 6, as a result of mid- to upper-90-degree temperatures in its service territory. The pipeline set the tolerance level at 20 percent. An OAD is generally issued when scheduled receipts exceed actual quantities received and when this threatens the pipeline’s ability to provide firm service.
* Northwest Pipeline Corporation reported on June 10 that it has reduced capacity between the Lava and Pocatello compressor stations (both located in Idaho) on June 10 from 54,000 decatherms to 0. The capacity reduction is the result of an anomaly investigation between the two compressor stations that is expected to last through July 3. During the maintenance period, the pipeline will not be able to transport above its design capacity through the Kemmerer-to-Meacham corridor in Wyoming and Idaho, respectively.