* Since Wednesday, May 14, natural gas spot prices decreased at most markets in the Lower 48 States. However, a price rally yesterday (May 21) contributed to price increases at some market locations since last Wednesday, May 14. Prices at the Henry Hub fell 11 cents per million Btu (MMBtu), or about 1 percent, to $11.40 per MMBtu.
* At the New York Mercantile Exchange (NYMEX), the futures contract for June delivery at the Henry Hub settled yesterday at $11.64 per MMBtu, rising 4 cents or less than 1 percent since Wednesday, May 14.
* Natural gas in storage was 1,614 billion cubic feet (Bcf) as of May 16, which is slightly below the 5-year average (2003-2007), following an implied net injection of 85 Bcf.
* The spot price for West Texas Intermediate (WTI) crude oil increased $8.78 per barrel on the week to $132.99 per barrel or $22.93 per MMBtu.
Natural gas spot prices decreased on the week (Wednesday-Wednesday) at most market locations, with intraweek spot market trading characterized by price decreases through Monday, May 19, and mixed price movements in trading since Tuesday, May 20. The softness in spot prices likely can be attributed to moderating temperatures. However, prices rallied in trading since Tuesday, on rising crude oil prices and incipient cooling demand for natural gas.
On a regional basis, prices exhibited considerable variability, declining in most regions of the Lower 48 States while climbing in others. Prices generally declined along the Gulf Coast, with average regional prices trading within 10 cents per MMBtu of last week’s level. Prices in the Florida region gained 59 cents per MMBtu during the same period. Prices in the Arizona/Nevada region and at the Southern California border fell between 26 and 28 cents per MMBtu. Prices in the Midwest and Northeast regions also declined on average, falling 8 and 12 cents per MMBtu, respectively. Meanwhile, prices in the Midcontinent region gained 29 cents per MMBtu over last Wednesday’s level.
Prices in the Rocky Mountains region increased significantly following the announcement on Monday, May 19, that a major leg of the Rockies Express West pipeline (REX-West) went into service (see Other Market Trends). Prices in the Rocky Mountains region posted an increase of 84 cents on average since last Wednesday, May 14, by far the largest in the Lower 48 States. The markets at El-Paso Bondad, El Paso non-Bondad, and Northwest South of Green River had the largest increases in the region, climbing $3.27, $3.11, and $1.91 per MMBtu since last Wednesday. While warming temperatures in the region may have contributed to these price increases, connecting the Colorado producing basin to other consuming regions in the Midwest doubtlessly constituted the dominant factor behind the price increases.
At the NYMEX, the prices for natural gas delivery contracts through May 2009 climbed between 4 and 28 cents per MMBtu since Wednesday, May 14. Prices for the 12-month futures strip (June 2008 through May 2009) averaged $11.967 per MMBtu as of Wednesday, May 21, climbing about 11 cents per MMBtu, or about 1 percent.
On Wednesday, May 21, the 12-month futures strip (June 2008 though May 2009) traded at a premium of 57 cents per MMBtu relative to the Henry Hub spot price. Contracts for delivery next winter (December 2008 through March 2009) traded at an average premium of $1.30 per MMBtu relative to the spot price. Price differentials of this magnitude provide suppliers significant incentives to inject natural gas into storage.
Working gas in storage increased to 1,614 Bcf as of Friday, May 16, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection of 85 Bcf into working gas was 7 percent below the 5-year average net injection of 91 Bcf and 16 percent below last year’s net injection of 101 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 (see Temperature Maps and Data) indicate that all Census Divisions in the Lower 48 States posted heating degree-days significantly above normal levels, except for the Pacific Division, and small levels of cooling degree-days. The relatively cool temperatures, especially in the Northeast, indicate some lingering heating-related demand for natural gas that limited the size of the net addition to storage. The economic incentives for storing 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. This level is well above the current difference of $1.30 per MMBtu.
Other Market Trends
BLM Releases Final Plan for NPR-A. The Bureau of Land Management (BLM) announced on May 16 that it would make land available for leasing in the Northeast portion of the National Petroleum Reserve in Alaska (NPR-A). The lease area could yield nearly 3 billion barrels of oil, which is equivalent to one-quarter of the oil produced over the past 31 years by North America’s largest oilfield in Prudhoe Bay. Furthermore, the land also could provide trillions of cubic feet of natural gas for North American markets. BLM expects to hold a lease sale this fall for available portions of the Northeast area, as well as portions of the Northwest planning area. The supplemental final plan for Northeast NPR-A updates information in the 2005 Northeast NPR-A Amended Environmental Impact Statement. BLM began developing the supplement in December 2006 in response to a September 25, 2006, decision by the U.S. District Court for the District of Alaska that the 2005 Northeast NPR-A Amended Integrated Activity Plan/Environmental Impact Statement (IAP/EIS) did not adequately address cumulative impacts. However, BLM will not open 219,000 acres of Teshekpuk Lake and its islands to oil and gas leasing, and it will also defer leasing for 10 years on 430,000 acres north and east of Teshekpuk Lake that are currently unavailable for leasing.
EIA Releases Report on Carbon Emissions. U.S. energy-related carbon dioxide emissions rose by 1.6 percent in 2007, from 5,888 million metric tons of carbon dioxide (MMTCO2) in 2006 to 5,984 MMTCO2 in 2007, according to the U.S. Carbon Dioxide Emissions from Energy Sources 2007 Flash Estimate released on May 20. Natural gas emissions increased by 77 MMTCO2 or 6.6 percent in 2007, totaling 1,234 MMTCO2 and accounting for 20 percent of total emissions during the year. The U.S. economy, as measured by gross domestic product grew by 2.2 percent, while energy demand increased by 1.7 percent, indicating that energy intensity fell by 0.5 percent year–over-year. Carbon dioxide intensity also decreased by 0.5 percent. Factors that contributed to the increase in carbon dioxide emissions in 2007 included weather conditions that led to higher consumption of fossil fuels, as both space-heating and -cooling demand were higher in 2007 than in 2006. Furthermore, electric power supply was more carbon intensive in 2007. The growth in carbon emissions was driven by the residential and commercial sectors, which increased by 4.4 and 4.3 percent, respectively, as heating degree-days rose by 6.7 percent and cooling degree-days rose by 2.6 percent. Industrial carbon dioxide emissions fell by 0.1 percent in 2007, continuing a trend of falling emissions since 2004. Transportation-related emissions, which account for about a third of total energy-related carbon dioxide emissions, increased by 0.1 percent in 2007. The electric power sector is the largest single source of U.S. carbon dioxide emissions, representing 40 percent of total emissions (when the sector emissions are considered as a whole rather than being attributed to the end-use sectors that consume electricity). In 2007, emissions from the electric power sector increased by about 71 MMTCO2 or 3 percent, while power generation increased by 2.5 percent. The 0.5-percent increase in the emissions intensity of generation reflects, among other factors, a decline in non-fossil-fueled generation, as increased generation from wind and nuclear power of 6 and 19 billion kilowatthours (kWh), respectively, did not offset a drop in hydro-generation of 40 billion kWh. Overall between 1991 and 2007, natural gas emissions grew by an average annual rate of 1.1 percent.
Natural Gas Transportation Update
* The final leg of the Rockies Express West pipeline (REX-West) is in service, Rockies Express Pipeline LLC announced on Tuesday, May 20. This 210-mile segment connects Audrain County, Missouri, with almost 500 miles of REX-West that had already begun service in January 2008. REX-West is a 42-inch-diameter pipeline that begins in Weld County, Colorado (at the Cheyenne Hub), providing 1.5 Bcf per day of capacity from Rockies production fields to markets in the Midwest. By the end of 2009, the pipeline is expected to expand further eastward to Clarington, Ohio, as part of the 638-mile REX-East segment. REX-West interconnects with Kinder Morgan Interstate Gas Transmission, Northern Natural Gas Company, Natural Gas Pipeline Company of America, ANR Pipeline Company, and Panhandle Eastern Pipeline Company.
* Excelerate Energy LLC on Tuesday, May 20, said its Northeast Gateway Deepwater Port commenced commercial operations, marking the first new LNG facility on the East Coast in more than 30 years. Northeast Gateway, located 18 miles east of Boston in Massachusetts Bay, received its LNG tanker shipment over the weekend, with total delivery of about 1 Bcf. The inaugural delivery was used to test all of the port and pipeline systems. The Northeast Gateway facility consists of two submerged buoys that attach to specialized LNG tankers with onboard regasification equipment. The regasified natural gas is delivered into a subsea pipeline system that was constructed by Algonquin Gas Transmission. The pipeline system has a capacity of 800 MMcf per day.
* El Paso Natural Gas Company declared a systemwide Strained Operating Condition (SOC) for low linepack Tuesday, but lifted the condition on Wednesday after flows increased as a result of maintenance on interconnecting pipelines. The imbalance tolerance was initially set at 10 percent, but El Paso warned that it would possibly reduce the tolerance. The low linepack had resulted from high temperatures in the pipeline’s service area resulting in takes in excess of scheduled quantities. El Paso’s Washington Ranch storage facility in Carlsbad, New Mexico, was at maximum withdrawal rate, according to the pipeline.
* Florida Gas Transmission Company (FGT) did not extend an Overage Alert Day (OAD) beyond Monday, May 19. But FGT has warned that it may be required to issue another OAD on an upcoming gas day because of hot weather in Florida (mid-90s).
* The outage is over on Transwestern Pipeline Company’s San Juan Lateral between Blanco Hub and Bloomfield Compressor Station in San Juan County, New Mexico. Operations on the lateral returned to normal in time for Wednesday’s gas day, increasing the segment’s capacity from 650,000 MMBtu per day to its original 1,235,000 MMBtu per day.