Natural gas spot prices increased in all trading regions in the Lower 48 States this report week (Wednesday–Wednesday, April 23-30). During the report week, the Henry Hub spot price increased $0.48 per million Btu (MMBtu) to $10.81. During the month of April, the Henry Hub spot price increased $0.95 per MMBtu, or 9.6 percent.
· At the New York Mercantile Exchange (NYMEX), prices declined for the report week, after a string of price increases during the previous five report periods. The futures contract for June delivery declined 10.3 cents per MMBtu on the week to $10.843.
· During the week ending Friday, April 25, estimated net injections of natural gas into underground storage totaled the largest volume to date this year at 86 billion cubic feet (Bcf). Working gas in underground storage as of April 25 was 1,371 Bcf, which is 0.2 percent below the 5-year (2003-2007) average.
· West Texas Intermediate (WTI) crude oil continued to trade at record-high price levels of over $110 per barrel. However, average daily prices have now declined for the past 3 days, leading to a decrease of $5.58 on the week. The WTI average yesterday (April 30) was $113.70 per barrel, or $19.60 per MMBtu.
Spot prices increased this week even as warmer springtime temperatures relaxed demand for natural gas as a space-heating fuel. Concerns over natural gas supplies and high crude oil prices continued to be the driving forces for the increases. As the price of crude oil reached a record-high of $119.64 per barrel last Friday (April 25), the Henry Hub price surged to its highest level in more than 2 years (following the devastating hurricane season in 2005). But after reaching a peak of $10.95 on Monday, the Henry Hub price has subsequently drifted lower to $10.81 per MMBtu. The net change for the report week was an increase of 48 cents per MMBtu. Other spot markets along the Gulf Coast in Louisiana and East Texas also registered relatively large price increases between $0.41 and $0.66 per MMBtu, resulting in an average regional price of $10.76 in Louisiana and $10.63 in East Texas yesterday.
Elevated natural gas spot prices also reflect recent supply conditions specific to the natural gas market. Production associated with the Independence Hub in the offshore Gulf of Mexico remains shut-in for the 22th consecutive day. Enterprise Products Partners reports that repairs are expected to be completed in the first half of May, but until that time about 900 million cubic feet (MMcf) per day of supplies are not available to the market. Liquefied natural gas (LNG) imports continue below last year’s volumes, with an average of 0.9 Bcf per day imported during April, less than one-third of the 3.2 Bcf per day imported during April 2007. Although deliveries are expected to increase in the month of May, there has been a sharp change in import levels so far in 2008. LNG deliveries totaled about 116 Bcf through April 2008, while volumes reached about 283 Bcf during the comparable period last year. LNG cargoes 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.
Spot prices increased in every market region in the Lower 48 States with the highest prices in the Northeast. The average price in the Northeast region yesterday was $11.65 per MMBtu, which was 69 cents higher than the previous Wednesday. This marked the fifth consecutive day of prices averaging over $11 in the region, which experienced the highest prices in the country. For the week, the average spot price for delivery in New York off Transcontinental Gas Pipe Line (Transco Zone 6-NY) increased $0.71 per MMBtu to $11.72, a premium of $0.91 per MMBtu to the price at the Henry Hub. This premium over the price at the Henry Hub is significantly lower than last 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.
Futures prices declined at the NYMEX for the report week, following a large downward move in forward prices on Tuesday, April 29. The price of the near-month contract (for June delivery) declined about 49 cents on Tuesday to $10.842 per MMBtu, which erased upward moves in the price of the June contract earlier in the week. In fact, before the precipitous decline, the closing price of the June contract reached as high as $11.329 per MMBtu on Monday, April 28. This was the highest price for the trading history of the June 2008 contract, including the period following the hurricane season in 2005. The large decline on Tuesday appeared largely connected to a concurrent decline of more than $3 per barrel in the crude oil price. The current June contract price of $10.843 per MMBtu is nearly $3 per MMBtu higher than the June 2007 contract price of $7.863 at this time last year. But it is worth noting, the June contract has declined during its tenure as the near-month contract in each of the past 2 years.
Recent high prices extend throughout the forward curve, suggesting prices are expected to remain elevated as industry rebuilds storage inventories for next year’s heating season, which will compete with summertime natural gas demand to fuel power generation for air-conditioning needs. Although contracts for futures prices beyond the near-month contract all decreased during the week, the average level remained considerably higher than recent years. 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 $11.07 per MMBtu, a decrease of about 16 cents since last Wednesday but still $2 more than the 12-month strip at this time last year. Beginning with the June 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 $11.93 per MMBtu on April 30.
The price of the May 2008 contract at its final expiration as the near-month contract was $11.280 per MMBtu. On its final day of trading (Monday, April 28), the May contract increased in value by 31.7 cents per MMBtu for a total gain of $1.702 during its term as the near-month contract. The May contract was the first contract to have a final settlement price of more than $11 per MMBtu since the January 2006 contract.
Recent Natural Gas Market Data
Working gas in storage increased to 1,371 Bcf as of Friday, April 25, 2008, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). This report week’s implied net injection of 86 Bcf is significantly higher than both the 5-year average injection of 64 Bcf and last year’s injection of 67 Bcf. As a result, storage activity during the report week reduced the difference between current inventories and the 5-year average level to just 3 Bcf or 0.2 percent, and the difference between the level of current inventories and last year’s level at this time to 255 Bcf or 15.7 percent.
This week’s report reflects changing storage activity with the occurrence of the largest net injection of the year. With the moderate temperatures of springtime, there is little weather-related demand (neither for space-heating nor by power-generators for air-conditioning needs). As a result, industry begins the process of building storage inventories in anticipation for higher demand levels later in the year. This week’s above-average injection came during a week when temperatures across the country were quite moderate. As measured by National Weather Service, heating degree-days (a measure of energy requirements relating to cold weather) totaled 34 percent lower than normal, and cooling degrees-days (a measure of energy requirements relating to hot weather) were 11 percent below normal for the week ending April 24. (see Temperature Maps and Data)
Other Market Trends:
EIA Releases Study on Energy Market and Economic Impact of S.2191. The Energy Information Administration (EIA) released a study on the effect of the proposed Lieberman-Warner Climate Security Act of 2007 on energy markets, focusing on the impact of the greenhouse gas cap-and-trade program under Title I of S. 2191. According to the report, the projected cost of the bill per U.S. household would increase from the current $76 per year to $723 by 2030. Implementing the bill would result in a 70-percent reduction in emissions from the 2005 levels by 2050. According to EIA, if new nuclear, renewable, and fossil plants with carbon capture and sequestration are not developed and deployed in a timeframe consistent with the emissions reduction requirements, covered entities are projected to turn to increased natural gas use to offset reductions in coal generation, resulting in a significantly higher price of $19 per MMBtu. The bill could also raise electricity costs by 11 to 64 percent by 2030, while the total discounted gross domestic product losses in 2009 through 2030 would range from $444 billion to $1.308 trillion under the base case. The enacted legislation also would lead to a rapid build-up in wind and solar energy capacity, which could provide a financial incentive for energy companies to deploy carbon capture and sequestration technologies.
EIA Launches Plain Language Series. On May 1, the Energy Information Administration (EIA) released a new series of publications titled Energy In Brief. The series is EIA’s latest attempt to provide the public with reliable energy information in a format that is useful and accessible by the widest possible audience. The first articles in the Energy In Brief series include information on crude oil, liquefied natural gas, renewable energy, and greenhouse gases. What is liquefied natural gas (LNG) and how is it becoming an energy source for the United States? notes that a growing volume of natural gas is coming to the United States in liquid form from overseas.
EIA Releases SEDS. On April 30, the Energy Information Administration (EIA) announced the release of the State Energy Data System (SEDS), which is a State-level energy production annual time series. SEDS includes coal, crude oil, and natural gas production estimates in physical units and British thermal units (Btus). Furthermore, the system provides data on total energy production estimates in Btus comprising fossil fuel production, renewable energy production, and nuclear electric power generation; rankings of production by State; and comparisons of State-level production and consumption. Time series cover 1960-2005 with the exception of data for natural gas and total production, which start in 1970. The complete SEDS report, including detailed documentation of data sources and estimation methodologies can be found at http://www.eia.doe.gov/emeu/states/_seds.html.
Natural Gas Transportation Update
· Energy Transfer Partners announced on April 28 that the Southeast Bossier 42-inch natural gas pipeline project in East Texas has been completed. The 42-inch, 150-mile pipeline runs from near Farrar, Texas, to near Silsbee, Texas. The pipeline connects the East Texas and Cleburne to Carthage pipelines with its Texoma Pipeline, north of Beaumont. This pipeline provides producers in the Barnett Shale and Bossier Sand development plays of Central and East Texas up to 900 million cubic feet per day (MMcf/d) of initial capacity. About 20 MMcf/d of initial supply was flowing as of April 30 into Trunkline's Northeast Texas/Field Zone Expansion project.
· Northwest Pipeline GP announced that the inspection at the Baker compressor station in Oregon has been completed, during which damage on unit #2 was discovered. As a result of the current operating conditions, Northwest anticipates that it can physically move between 422,000 decatherms per day (Dth/d) and the design capacity of 444,000 Dth/d.
· Enterprise Products Partners announced that the Independence Trail Pipeline is expected to resume service during the first half of May. Independence Trail is a natural gas pipeline located in the deepwater Gulf of Mexico. When fully operational, the 24-inch pipeline will have the capacity to transport up to 1 billion cubic feet per day (Bcf/d) of natural gas from the Independence Hub to an interconnect with Tennessee Gas Pipeline. Flows on Independence Trail were suspended on April 8 because of a leak at a flex joint that connects the pipeline to the platform. The outage has resulted in the loss of about 890 MMcf/d of production, or a total of 18.4 Bcf of shut-in production since the outage occurred. Repairs to the flex joint are ongoing.
· Spectra Energy Corporation’s East Tennessee Natural Gas Pipeline announced that for gas day April 28 and until further notice, a Department of Transportation hydrotest will take place on the discharge of Boyds Creek compressor station located in Tennessee.
· Transcontinental Gas Pipe Line Corporation announced on April 29 that significant operational difficulties on its Mobile Bay Lateral had affected Rate Zone 4A and 4B. Insufficient receipts to meet delivery obligations on the Mobile Bay Lateral have resulted in significant imbalances and pressures that do not support normal operations on the lateral. If necessary, Transco will issue an operational flow order to ensure that Transco maintains the operational flexibility necessary to accommodate within-the-day variability and maintain operational pressures sufficient to provide efficient and reliable firm services.