Overview (For the Week Ending Wednesday, May 6, 2009)

  • Natural gas spot prices rose this week at almost every market location, with increases generally ranging between 10 and 30 cents per million Btu (MMBtu).
  • During the report week, the price at the Henry Hub spot location rose to $3.67 per MMBtu, increasing by 7 percent since last Wednesday.
  • At the New York Mercantile Exchange (NYMEX), futures prices also increased this week in tandem with the crude oil prices. The natural gas futures contract for delivery in June gained 48 cents and ended the report week at $3.887 per MMBtu. Meanwhile, the price for the July 2009 contract rose by 47 cents, settling at $4.012 per MMBtu in yesterday session.
  • As of Friday, May 1, working gas in underground storage climbed to 1,918 billion cubic feet (Bcf), leaving inventories at 23.3 percent above the 5-year (2004-2008) average.
  • The price of the West Texas Intermediate (WTI) crude oil contract increased by $6.10 per barrel to $56.29 per barrel or $9.71 per MMBtu. The WTI recorded its highest weekly net increase this report week since late February and crude oil prices have posted a net gain of almost $9 per barrel over the past 2 weeks.
  • Natural gas rigs drilling in the United States posted another decrease last week, falling by 1 rig to 741 compared with the previous week, according to Baker Hughes, Incorporated. As of May 1, the rigs drilling for natural gas were 732 fewer than last year at this time.

Prices

Natural gas spot prices increased at nearly all locations in the Lower 48 States this week by as much as 70 cents. However, most locations rose between 10 and 30 cents. The only exception to this week price increases was one location on the Texas Eastern pipeline, which decreased by 3 cents since last Wednesday. Spot prices rose this week in response to an increase in space cooling demand, particularly in the desert Southwest and the Southeast United States. Current temperatures in these areas as well as forecasts of continued hot weather over the next few days pushed prices higher this week. For example, the Florida Gas Transmission price rose by 70 cents since last Wednesday, ending trading yesterday at $4.48 per MMBtu. Spot prices in the Arizona/Nevada area also increased on the week, posting average gains of 26 cents or about 9 percent.

On a regional level, producing areas of the country registered increases between 12 and 27 cents this week, with the smallest weekly price increases occurring in the Rocky Mountains. Despite an increase this week, yesterday average regional price in the Rockies of $2.88 per MMBtu was the only regional price lower than $3 per MMBtu. In Louisiana and East Texas, spot prices finished the week with respective increases of 7.8 percent to $3.69 per MMBtu and 5.8 percent to $3.50 per MMBtu. Prices in other producing areas, such as the Mississippi/Alabama region, rose by an average of 23 cents to $3.67 per MMBtu.

Trading locations in the Northeast and in Florida had the highest prices as of yesterday, with regional average prices exceeding $4 per MMBtu. The weather strong influence over trading in these regions likely contributed to price increases. Florida has been experiencing an increase in cooling load, while temperatures in the Northeast fell significantly over the past week, spurring some heating demand in the northernmost portion of the region. The remaining trading regions (except the Rockies) in the Lower 48 States ended the trading week with average regional prices between $3.12 and $3.80 per MMBtu.

At the NYMEX, the price of the June 2009 futures contract increased by 48.4 cents in its first week of trading as the near-month contract, ending trading yesterday at $3.887 per MMBtu. The June contract rose in three of this week five trading session, gaining more than 27 cents in Wednesday trading alone. The July 2009 contract also rose this week, climbing by 47 cents or about 13 percent to $4.012 per MMBtu. This increase marks the first time the near-month or the following month exceeded $4.00 per MMBtu since late March, when the May contract ended trading at $4.034 per MMBtu. While factors such as the decreasing number of natural gas rigs may have affected futures prices, these prices may also be responding to rising crude oil prices and recent indicators of the start of economic recovery.

Prices of contracts through the remaining months of the injection season posted similar increases, rising by an average of 46 cents per MMBtu or about 12 percent. Overall, the 12-month strip, which is the average for natural gas futures contracts over the next year, was priced at $5.074 per MMBtu, an increase of about $0.44, or 9.9 percent, since last Wednesday. Price increases for the contracts in the strip ranged between 40 and 48 cents per MMBtu. As of yesterday, the highest priced contract was the February 2010 contract, which ended trading at $6.027 per MMBtu, the first time a heating-season contract crossed the $6-per MMBtu threshold since late March. The premium of more than $2 per MMBtu between yesterday spot price and the average price for future delivery next winter (November 2009 to March 2010) provides a strong economic incentive to inject natural gas into storage.

Storage

Working gas in storage increased to 1,918 Bcf as of Friday, May 1, 2009, according to EIA Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection during the report week was 95 Bcf, increasing the differential to the 5-year average inventory level to 362 Bcf or 23.3 percent. This week net injection of 95 Bcf is the largest net injection so far this season, and is about 40 percent higher than both last year and the 5-year average net injections of 68 Bcf. As of May 1, storage inventories were 34.4 percent above last year level for the same week of 1,427 Bcf. Since April 1, net injections have totaled roughly 264 Bcf, which is about 31 percent more than total volumes injected during the same period last year.

As the country is experiencing typical shoulder season weather, both heating and cooling demand were relatively low for the week covered by the latest storage report. The latest heating- and cooling-degree day statistics published by the National Weather Service for the period roughly coinciding with the week covered by this storage report suggest that weather-related gas demand was minimal relative to the peak periods in the summer and winter, limiting any heating- or cooling-load demand. Temperatures were rather moderate with average daily temperatures in each Census Division in a range from 53 degrees Fahrenheit in the Mountain division to 73 degrees in the West South Central. However, the temperatures in some Census Divisions reflect significant variations from normal temperatures, including the 10-degree higher temperature differential in the New England and Middle Atlantic Census Divisions. Additionally, the East North Central and East South Central Census Divisions recorded temperatures that exceeded normal by 8.4 and 8.9 degrees, respectively, averaging 60.4 and 70.1 degrees, respectively. Temperatures for the country as a whole averaged 61.6 degrees compared with the normal average temperature of 56.9 degrees and last year average temperature of 58 degrees(see Temperature Maps and Data).

Other Market Trends

MMS Releases Gulf of Mexico Oil and Gas Forecasts. According to the U.S. Minerals Management Service (MMS) report, Gulf of Mexico Oil and Gas Production Forecast 2009-2018, natural gas production in the Gulf of Mexico is expected to remain below production rates seen in the 1990s. In the committed scenario, gas production is expected to reach almost 7 billion cubic feet per day (Bcf) this year and decline after 2009. The report noted that if contributions from industry-announced discoveries and undiscovered resources reach full potential, production could either level off or show small gains during the forecast period. Production could reach 8.27 Bcf per day in 2018 under the full potential scenario, compared with 2.32 Bcf per day at the end of the forecast period in 2018 under the committed scenario. According to Deepwater Gulf of Mexico 2009: Interim Report of 2008 Highlights, deepwater production made up about 36 percent of total natural gas production in the region. The report noted that nine new fields associated with the Independence Hub, a deepwater natural gas production platform in the Gulf of Mexico, came online in 2007. The Independence Hub total production capacity of 1 Bcf per day represents more than 10 percent of total natural gas production in the region. Additionally, the report noted that the time between leasing and production has diminished as a result of the oil and natural gas industry gaining more experience in deepwater production. Gulf of Mexico Oil and Gas Production Forecast 2009-2018 can be found here: http://www.gomr.mms.gov/PDFs/2009/2009-012.pdf; and Deepwater Gulf of Mexico 2009: Interim Report of 2008 Highlights can be found here: http://www.gomr.mms.gov/PDFs/2009/2009-016.pdf

Natural Gas Transportation Update

Panhandle Eastern Pipe Line Company, LP, reported a rupture on its Line 200 in Indiana on Wednesday, May 6. The line break occurred late Tuesday afternoon, downstream of the Montezuma Compressor Station in a rural area of Parke County. Based on nominations in effect at the time, Panhandle does not expect any curtailments. Total transportation capacity through the pipeline in the region is 540,000 decatherms (Dths) per day. The rupture occurred on a 24-inch line, but there are two adjoining 30-inch diameter lines in the area that can allow bypass flows.

Questar Pipeline Company reported a mechanical failure at Kastler Compressor Station in Daggett County, Utah on May 6. The partial shutdown of operations will reduce injection capacity into Questar nearby Clay Basin storage facility to 350,000 Dth per day. Questar did not provide a target date for the compressor return to full service.

With temperatures exceeding 90 degrees this report week in Florida, Florida Gas Transmission Company, LLC, has been monitoring pipeline conditions closely in order to maximize flows. The pipeline company continues to maintain shipper restrictions in order to balance their supplies. Shippers are allowed negative balances (withdrawn volumes exceeding nominations for supplies) of 25 percent. The restriction was implemented through the company declaration of an Overage Alert Day, which occur frequently during the spring and summer.

Nautilus Pipeline Company, LLC, resumed service for a portion of its pipeline in the Gulf of Mexico on April 28. However, substantial operational interference from liquids on the pipeline during the days following resumption has necessitated further testing. The original shut-down, which went into effect 2 months ago, resulted from a leak on the pipeline offshore Louisiana and required restrictions on receipts in the Ship Shoal portion of the Gulf.