Overview* Natural gas spot price movements were mixed this report week (Wednesday–Wednesday, June 18-25), with price decreases generally occurring in producing areas in the Gulf of Mexico region and price increases at trading locations in the Rockies, the Midcontinent, and the Northeast. During the report week, the Henry Hub spot price decreased $0.17 per million Btu (MMBtu) to $12.76.* At the New York Mercantile Exchange (NYMEX), a trend of rising prices for futures contracts was at least temporarily interrupted. After trading at $13.20 per MMBtu on Monday, the futures contract for July delivery decreased by 45 cents in value over the next 2 days and ended the week 46 cents lower than last Wednesday. Yesterday’s closing price of the July contract, for which the last trading day is today (June 26), was $12.753.* For the week ended Friday, June 13, natural gas net injections into underground storage were 57 Bcf. With the latest net injections, inventories now stand at 1,943 Bcf, which is 2.6 percent below the 5-year average.* During the week ending Friday, June 20, estimated net injections of natural gas into underground storage totaled 90 billion cubic feet (Bcf). Working gas in underground storage as of June 20 was 2,033 Bcf, which is 2.7 percent below the 5-year (2003-2007) average.* West Texas Intermediate (WTI) crude oil continued to trade above $130 per barrel. However, a sharp decrease of $2.57 per barrel on Wednesday, June 25, resulted in a net decline of $2.62 in the crude oil price during the report week. The WTI average price yesterday was $133.92 per barrel, or $23.09 per MMBtu.

PricesExceeding $12 per MMBtu in most parts of country, natural gas prices far surpass historical records for this time of year. Along with the official start of the summer occurring this week, spot prices at the Henry Hub breached $13 per MMBtu for the first time since December 2005 in the aftermath of the hurricane season that year. Increases in demand from electric generators meeting air-conditioning demand have already occurred in the Southwest and part of the East Coast earlier this month and are expected to expand as the summer proceeds. In addition to the increasing demand from hot temperatures around the country, the elevated price level for natural gas currently appears related to growing financial investment in many commodities, including metals, agricultural products and crude oil, resulting in steep prices increases. Since the beginning of 2008, the spot price at the Henry Hub has increased $4.93 per MMBtu, or 63 percent, to yesterday’s average of $12.76. Nonetheless, with temperatures relatively moderate this week for the country as a whole and a decline in the price of crude oil, the net change in the Henry Hub spot price this report week was a decrease of 17 cents per MMBtu. Other spot markets along the Gulf Coast in Louisiana and East Texas registered regional price decreases of $0.12 and $0.15 per MMBtu, respectively. The average regional price yesterday was $12.79 and $12.53 in East Texas and Louisiana.Although temperatures across the country have not yet reached summer peaks, rising temperatures in the Northeast likely supported price increases in the region during the report week. The average price in the Northeast region yesterday was $13.65 per MMBtu, which was 23 cents higher than the previous Wednesday. The Northeast has experienced the highest prices in the country (outside Florida), owing in part to pipeline transportation costs for deliveries from the Gulf of Mexico region. Of the 18 trading days in June to date, the average price in the Northeast has fallen below $13 per MMBtu only twice. For the week, the average spot price for delivery in New York off Transcontinental Gas Pipe Line (Transco Zone 6-NY) increased by $0.35 per MMBtu to $13.98, a premium of $1.22 per MMBtu to the price at the Henry Hub.In the Rockies region, the average price yesterday was $10.35 per MMBtu, the lowest average regional price in the Lower 48 States as the region continues to experience shut-in supplies caused by maintenance of infrastructure and related activities. Maintenance related to pipelines serving the Opal processing plant in Wyoming has reduced pipeline capacity eastbound. The reduced supplies from this maintenance, as well as other projects, lowered upstream prices in the Rockies, while increasing the value of Midcontinent supplies during the week. The average price in the Midcontinent, which is located downstream of the Rockies producing region as a result of the new Rockies Express Pipeline, increased 38 cents per MMBtu to $11.48.The pace of deliveries of liquefied natural gas (LNG) imports remains considerably below last year’s volumes and now appears to have been less than 200 Bcf for the first half of the year, which is less than half of the approximately 460 Bcf received last year during the same time period. LNG imports in June have averaged about 0.9 Bcf per day (based on sendout data from LNG import terminals), which is significantly less than the average of 2.8 Bcf per day in June 2007. Most flexible LNG cargoes are heading to Europe and Asia, where buyers continue to purchase LNG at prices higher than those that have prevailed in U.S. markets.

At the NYMEX, the price of the near-month contract (for July delivery) decreased 45.7 cents per MMBtu during the report week to $12.753 as prices for competing products decreased and the weather outlook appeared to limit demand by electric power generators in the near-term. The largest price movement of the week for the near-term contract occurred yesterday (June 25) as the July contract lost approximately 26 cents per MMBtu. The downward price pressure appeared related to the crude oil price, which decreased by $2.57 per barrel following the release of a market report by the Energy Information Administration. Recent high natural gas prices extend throughout the forward curve, suggesting prices are expected to remain elevated through at least the next winter heating season. 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 $12.804 per MMBtu, a decrease of about 31 cents since last Wednesday. Beginning with the July 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 $13.84 per MMBtu on June 25.

StorageWorking gas in storage increased to 2,033 Bcf as of Friday, June 20, 2008, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). This report week’s implied net injection of 90 Bcf is slightly below both the 5-year average injection of 94 Bcf and last year’s injection of 96 Bcf. As a result, storage activity during the report week increased the difference between current inventories and the 5-year average level from 52 Bcf below average to 56 Bcf below. Further, the deficit between current inventories and levels last year at this time increased from 376 Bcf to 382 Bcf.The slightly-below-average net injection came during a week when warmer-than-normal temperatures in the Lower 48 States, particularly in the West South Central and Pacific Census Divisions, likely generated weather-related demand (by power-generators for air-conditioning needs). As indicated by National Weather Service degree-day data, the number of cooling degree-days totaled 14 percent above normal for the country as a whole. However, temperatures remained below extreme levels typical for later in the cooling season with an average overall temperature for the week of just 72 degrees Fahrenheit, 1 degree above normal (see Temperature Maps and Data)

Other Market TrendsFERC Authorizes Final Rule on Secondary Capacity Release. On June 19, 2008, the Federal Energy Regulatory Commission (FERC) authorized a final rule on secondary natural gas capacity release markets that removes price caps on short-term releases of capacity and increases flexibility in asset management agreements. Under an asset management arrangement, a capacity holder releases some or all of its pipeline capacity to an asset manager who agrees either to purchase from or supply the natural gas needs of the capacity holder. The rule is intended to strengthen competition in the secondary capacity release markets, enable shippers to obtain gas supplies, improve access to the interstate natural gas pipeline system, as well as provide more accurate price signals on the market value of pipeline capacity. The final rule adopts and clarifies provisions of the November 2007-proposed rule, which called for permanent removal of the rate cap on capacity release transactions of 1 year or less. Furthermore, FERC modified policies and regulations to facilitate and accommodate the use of asset management arrangements. The final rule is expected to go into effect during the second half of July.MMS Publishes Open Access Rule. On June 18, the Minerals Management Service (MMS) announced a final rule on Open and Nondiscriminatory Movement of Oil and Gas, which provides procedures for a shipper transporting oil or gas production from Federal leases on the Outer Continental Shelf (OCS) to follow if it believes it has been denied open and nondiscriminatory access to pipelines on the OCS. Pipeline companies must provide open access to their offshore pipeline according to the rule. The final rule is expected to go into effect on August 18.EIA Releases Highlights of the International Energy Outlook. The Energy Information Administration (EIA) released the report International Energy Outlook 2008 - Highlights on June 25, 2008. The International Energy Outlook 2008 (IEO2008), which is scheduled to be released sometime in July, will present EIA’s assessment of the outlook for international energy markets through 2030. Nations outside the Organization for Economic Cooperation and Development (Non-OECD) are projected to have the most growth in energy demand from 2005 to 2030 as a result of strong expected economic growth. U.S. projections appearing in IEO2008 are consistent with those published in EIA’s Annual Energy Outlook 2008 (AEO2008). According to the report, fossil fuels are expected to continue supplying much of the energy used all over the world. In the reference case, natural gas consumption increases from 104 trillion cubic feet (Tcf) in 2005 to 158 Tcf in 2030. Natural gas is expected to replace oil whenever possible because of lower carbon dioxide emissions from natural gas combustion. In 2030, generated electricity is expected to account for 35 percent of the world’s total natural gas consumption. Increased production from Non-OECD nations is projected to fulfill the expanding needs of natural gas. Natural Gas Transportation Update* Natural Gas Pipeline Company of America (NGPL) has postponed installing its Oklahoma Extension #1 in Carter County, Oklahoma, until July 15. The project was previously scheduled for June 24.* El Paso Natural Gas Company declared a systemwide strained operating condition (SOC) effective June 21 with the imbalance tolerance set at 10 percent. The SOC was the result of shippers’ takes that exceeded scheduled quantities, leading to a significant loss in the system linepack. El Paso’s limited withdrawal ability at the Washington Ranch storage facility in Carlsbad, New Mexico, exacerbated the linepack problem. In addition to the restrictions on takes, the SOC, which was lifted on June 23, resulted in the suspension of interruptible storage service.* Gulf South Pipeline Company began unscheduled maintenance on June 23 at the Napoleonville compressor station in Assumption Parish, Louisiana, which is expected to last for approximately 2 weeks. During this period, capacity through the station will be reduced by as much as 150,000 decatherms (Dth) per day. Gulf South also announced that it will begin 5 days of scheduled maintenance on June 30 at the Jackson compressor station in Mississippi. Capacity at this point will be reduced by about 100,000 Dth per day.* Northwest Pipeline Corporation invoked a realignment operational flow order (OFO) provision at the Meacham compressor station in Meacham, Oregon, on June 26 because net scheduled quantities exceeded operational capacity by 22,000 Dth per day. Under the realignment OFO provision, Northwest can ask shippers to realign their nominations from receipt points south of Meacham to receipt points north of Meacham. An earlier realignment OFO, which took effect June 19, was lifted on June 25. However, Northwest reinstated it effective June 26 until further notice. According to the pipeline, the OFO was reinstated because the net scheduled quantities once again exceeded operational capacity and shipper feedback indicated that nominations are likely to exceed capacity without an OFO in place.* Pacific Gas and Electric Company issued a systemwide high inventory OFO for June 26. The pipeline set penalties at $1 per Dth for positive daily imbalances exceeding 7 percent tolerance.