* Natural gas spot prices increased in a majority of regions of the Lower 48 States this report week (Wednesday–Wednesday, May 7-14).The Henry Hub spot price increased $0.43 per million Btu (MMBtu) to $11.51, the highest average price recorded at the Henry Hub in more than 2 years.
* At the New York Mercantile Exchange (NYMEX), prices also continued on an upward trend that has resulted in weekly price increases in 6 of the last 7 report weeks. The futures contract for June delivery increased 27.1 cents per MMBtu on the week to approximately $11.60.
* During the week ending Friday, May 9, estimated net injections of natural gas into underground storage totaled the largest volume to date this year at 93 billion cubic feet (Bcf). Working gas in underground storage as of May 9 was 1,529 Bcf, which is 0.2 percent above the 5-year (2003-2007) average.
* West Texas Intermediate (WTI) crude oil continued to trade at record-high price levels of more than $120 per barrel. The WTI average price yesterday (May 14) was $124.21 per barrel, or $21.42 per MMBtu.
With the exception of the Rockies, spot prices increased at all regional markets in the Lower 48 States despite the continuing springtime lull in weather-driven demand. The net change for the report week at the Henry Hub was an increase of 43 cents per MMBtu, while other spot markets in the major producing region along the Gulf Coast in Louisiana and East Texas also registered relatively large price increases between $0.27 and $0.53 per MMBtu. Some notable price decreases in the Gulf Coast region occurred because of cooler weather and associated reduced demand for natural gas as a fuel for power generation in Florida. Nonetheless, the resulting average regional price of $11.39 per MMBtu in Louisiana and $11.11 in East Texas yesterday established new record highs for this time of year.
Concerns over natural gas supplies and high crude oil prices continued to drive price increases. As the price of crude oil reached a record-high of $125.94 per barrel last Friday (May 9), natural gas at the Henry Hub traded at $11.29 per MMBtu. The elevated prices of both commodities continued for most of the trading week, although the price of crude oil lessened somewhat to $124.21 by Wednesday, May 14. At the same time, natural gas prices continued to rise as Enterprise Products Partners on Tuesday reported that repairs at the Independence Hub in the offshore Gulf of Mexico now are not expected to be completed until the first half of June. Until that time about 900 million cubic feet (MMcf) per day of supplies will not available to the market (see Transportation Notes below for details).
Although supplies of liquefied natural gas (LNG) imports have increased to their highest level of 2008, the pace of deliveries remains considerably below last year’s volumes. During May 2007, LNG imports averaged 2.9 Bcf per day, about three times the current level. LNG deliveries this year 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.
The Rockies region was the only market region in the Lower 48 States to experience a decrease in the market price during the report week. The average price in the Rockies region yesterday was $8.75 per MMBtu, which was 21 cents lower than the previous Wednesday. During the week, there was substantial price volatility as maintenance on several pipelines restricted flows. On Monday, May 12, the price at the non-Bondad pool in the San Juan Basin decreased $2.89 per MMBtu, as flows were restricted into California on El Paso Natural Gas Pipeline Company. For the week, the average spot price at the non-Bondad pool dropped $2.35 per MMBtu to $6.73. Although prices at many other trading locations were similarly lower on the week, prices generally rebounded yesterday (May 14) with California expected to experience the hottest temperatures to date in 2008 over the next couple of days. In fact, the San Francisco utility Pacific Gas and Electric Company already has notified customers that temperatures may exceed 100 degrees and requested conservation by businesses.
Futures prices increased at the NYMEX for the report week, continuing an upward trend since the beginning of the year. The price of the near-month contract (for June delivery) increased about 30 cents during the past couple of days to $11.598 per MMBtu, which erased a sharp decrease of about 24 cents in the price of the June contract on Monday. At approximately $11.60 per MMBtu, the current price is at a historical high for a NYMEX contract with June delivery, including the June 2006 contract following the hurricane season in 2005. The current June contract price is about $4 per MMBtu higher than the June 2007 contract price of $7.591 at its monthly expiration.
Recent high prices extend throughout the forward curve, suggesting prices are expected to remain elevated through at least the next winter heating season. Prices for delivery during the summer months of July and August are priced, respectively, 14 and 23 cents higher than the June contracts, reflecting expected higher natural gas demand to fuel power generation for air-conditioning needs. At the same time, as occurs every year, the natural gas industry will be injecting supplies into storage for next winter. 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 $11.86 per MMBtu, an increase of about 28 cents since last Wednesday. Beginning with the June 2008 contract, futures prices increase steadily through the beginning of 2009. The highest-priced contract in the futures strip is the January 2009 contract, which closed at $12.74 per MMBtu on May 14.
Working gas in storage increased to 1,529 Bcf as of Friday, May 9, 2008, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). This report week’s implied net injection of 93 Bcf exceeded the 5-year average injection of 79 Bcf by 18 percent. As a result, current storage inventories are now slightly above the aggregate 5-year average level of 1,526 Bcf. Nonetheless, the net injection was slightly below the estimated 95 Bcf net injection last year during the comparable time period. The aggregate level of current storage inventories is 286 Bcf, or nearly 16 percent, lower than they were at this time last year.
The implied net injection of 93 Bcf in this week’s report is the largest injection to date in 2008. This addition to storage occurred at a time of moderate temperatures in the Lower 48 States. Often referred to as a shoulder season, spring often is characterized by 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 of higher demand levels later in the year. As measured by the National Weather Service, heating degree-days (HDDs) were only slightly lower than normal, and cooling degrees-days (CDDs) were equivalent to the normal level for the week ending May 8 (see Temperature Maps and Data). The average temperature of 60 degrees for the week was 1 degree above normal. The moderate temperatures were not high enough to create substantial weather-related demand.
Other Market Trends
NEB Issues Report on Canadian Energy. Canada’s National Energy Board (NEB) issued a new report titled Canadian Energy Overview 2007, which examines the country’s natural gas, crude oil, and electric power production. According to the report, Canadian natural gas production decreased about 2 percent in 2007, averaging 16.8 billion cubic feet (Bcf) per day, while crude oil production increased about 7 percent, spurred by record high prices. Western Canadian natural gas production remained relatively stable through the first half of the year as wells drilled during the first half of 2006 were connected into the pipeline system and brought on stream. Reduced drilling in the second half of the year was partly responsible for the annual decline with production decreasing by an average of about 0.4 Bcf per day. On the East Coast, Sable Island production averaged 0.41 Bcf per day or about 33 percent higher than at the start of 2007. Additional production from the onshore McCully field in New Brunswick started in mid-year and gradually increased to represent about 7 percent of the region’s production. NEB’s estimate of remaining marketable gas reserves in Canada at the end of 2006, the last year for which data were available, was 58.1 trillion cubic feet (Tcf), while Canada’s reserve additions were 7 Tcf in 2006, replacing 116 percent of annual production. Overall, Canada remains self-sufficient in meeting its own energy needs, even with exports of natural gas, crude oil, and electricity. About 82 percent of total U.S. imports of natural gas in 2007 came from Canada, while Canada supplied about 20 percent of U.S. daily crude oil imports.
Natural Gas Transportation Update
* Enterprise Product Partners LP announced that the Independence Hub platform and Independence Trail pipeline are expected to be in service within the first half of June provided no unexpected weather-related issues occur. The Independence Trail pipeline was shut in on April 9 as a result of a leak that appeared to be originating from a stainless steel o-ring located on the top flange of a flex joint in approximately 85 feet of water. The pipeline’s flex joint connects the Independence Hub platform to the offtake pipeline. Initially, the repair work included tightening the bolts around the flange adjacent to the stainless steel o-ring, repressuring the pipeline, and inspecting the leaks. After the initial repair work was completed, there was a small leak that required proceeding with a second step in the repair process, which was to replace the o-ring. In order to perform this repair, a specialty plug had to be temporarily installed in the Independence Trail pipeline to isolate the flex joint from the pipeline while the o-ring is being replaced. While attempting to set the plug, a restriction in the interior diameter of a 20-inch tee fitting on the platform was encountered that prevented the plug from being installed. The tee has been removed from the platform and is currently being machined to increase the inside diameter and eliminate the restriction. Upon completion of the machining, the tee will be reinstalled on the hub and the repair process will continue. Production from the Independence Hub had been averaging about 890 million cubic feet per day prior to the outage.
* Liberty Gas Storage, a subsidiary of Sempra Energy Company, has rescheduled the in-service date of the 11-Bcf Liberty Storage project, which initially was supposed to begin operation in mid-May. The company did not indicate when the project is likely to begin service. When completed, the storage project, which is located in Calcasieu Parish, Louisiana, is expected to have 1 billion cubic feet per day of withdrawal capacity and 500 million cubic feet per day of injection capacity. Liberty currently provides hub services on its associated pipeline, which is connected to Transcontinental Gas Pipe Line (Transco), Tetco, Tennessee Gas Pipeline, Florida Gas Transmission Company, and Trunkline Gas Company.
* Transco on May 13 announced the completion of smart pig runs on construction project #19 located in Virginia. (Smart pigs are devices run through a pipeline to check for defects or anomalies.) Anomaly investigation immediately downstream of compressor station 170 will prevent Transco from providing interruptible service at the station 180 constraint point, starting with gas day May 15, 2008. The restriction on interruptible service will be in effect until late May.
* Transco also listed nine points on its pipeline system that will experience flow constraints effective May 15. These points include locations in Mississippi, Alabama, and Texas. Volumes under interruptible transportation service, which includes secondary firm transportation (FT) and interruptible transportation (IT), are limited at these points and are limited to natural gas received upstream for delivery downstream. The Transco pipeline system runs from Texas to New York. Furthermore, there are 11 receipt and/or delivery points that have been limited as a result of operational conditions and system pressures. Additional locations may become limited on a case-specific basis.