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Natural Gas Weekly Update

for week ending July 16, 2014  |  Release Date:  July 17, 2014  |  Next Release: July 24, 2014

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JUMP TO: In The News | Overview | Prices/Demand/Supply | Storage

In the News:

Tight oil drilling lifts associated natural gas production

While the number of natural gas-directed drilling rigs is particularly low right now, gas production continues rising, and is currently up 5% year-over-year. One key reason for the gas production boost is the significant increase in natural gas reserves and production associated with tight oil drilling and production.

As noted in the Natural Gas Weekly Update of June 25, production of associated gas has been growing in those areas of the country where tight oil production has also been growing because tight oil production requires the presence of natural gas to drive liquids to the wellbore.

The importance of tight oil drilling and production on natural gas supply is further illustrated by the 103% increase in Lower 48 natural gas reserves associated with oil, which increased from 21.9 trillion cubic feet (Tcf) at year-end 2007 to 44.5 Tcf at year-end 2012.

In North Dakota, associated natural gas reserves grew from 0.4 Tcf at year-end 2007 to 3.9 Tcf at year-end 2012, an increase of more than 800%. Because the Williston Basin in North Dakota is primarily oil-bearing, particularly the Bakken and Three Forks tight oil formations, associated natural gas has always been the dominant gas supply constituent, rising from 73% of total gas reserves at year-end 2007 to almost 100% of total gas reserves by year-end 2012.

Texas also illustrates the importance of tight oil drilling on natural gas supply. Tight oil production in Texas has grown dramatically, coming from the Eagle Ford formation near the Gulf Coast and from the multiple tight oil formations located in the West Texas Permian Basin. Associated natural gas reserves in Texas increased by 153%, growing from 7.5 Tcf at year-end 2007 to 19.0 Tcf at year-end 2012.

A similar increase in associated natural gas reserves took place in Colorado, where the Niobrara tight oil formation is being drilled in the Denver-Julesburg Basin. Colorado's associated gas reserves rose from 1.8 Tcf at year-end 2007 to 3.4 Tcf at year-end 2012, an 88% increase.

In contrast, some other regions within the country with limited tight oil production are witnessing a decline in associated natural gas reserves. For example, California, which has little if any tight oil production, posted a 16% decline in associated natural gas reserves from 2.2 Tcf at year-end 2007 to 1.8 Tcf at year-end 2012.

Overview:

(For the Week Ending Wednesday, July 16, 2014)

  • Natural gas prices generally fell at most market locations this report week (Wednesday, July 9—Wednesday, July 15). The Henry Hub spot price declined from $4.15 per million British thermal unit (MMBtu) last Wednesday to $4.10 yesterday.
  • At the New York Mercantile Exchange (Nymex), the price of the near-month futures contract (August 2014) fell from $4.170/MMBtu last Wednesday to $4.119/MMBtu yesterday.
  • Working natural gas in storage rose to 2,129 Bcf as of Friday, July 11, according to the U.S. Energy Information Administration (EIA) Weekly Natural Gas Storage Report (WNGSR). A net increase in storage of 107 billion cubic feet (Bcf) for the week resulted in storage levels 22.2% below year-ago levels and 25.5% below the 5-year average.
  • The Baker Hughes rotary rig count increased by 1 to 1,875 active units this week. Natural gas rigs remained flat at 311, while oil rigs increased by 1 to 1,563. Gas rigs are 51 units less than last year's level, and oil rigs are 172 units greater than last year's level.
  • The average daily Mont Belvieu, Texas, natural gas plant liquids composite price for the week covering July 7 — July 11 decreased by 22 cents/MMBtu (2.2%) to $9.77/MMBtu. Prices of all of the components of the price fell, with a 7% decline in the price of ethane leading the overall decline. Propane, butane, isobutane, and natural gasoline fell by 1.1%, 0.5%, 2.2%, and 1.6%, respectively.

more summary data

Prices/Demand/Supply:

Prices fall on cooler weather. Prices across most of the country fell during the week as air conditioning demand moderated with cooler temperatures. The Henry Hub spot price continued a several week decline, falling from $4.15/MMBtu at the beginning of the week to $4.10/MMBtu yesterday. In a phenomenon reminiscent of the past winter, a cold wave came down from the Arctic this week. Media outlets dubbed this the "ghost of the polar vortex," and the cold air mass first led to fall-like temperatures in the Midwest on Monday and Tuesday before heading to the East Coast. Mild weather in the Rocky Mountains and West Coast also contributed to slight price declines in the markets.

Northeast prices rise midweek, then fall. Despite expectations for cooler weather, prices in New York and Boston rose midweek—but still remained relatively low, and well below the Henry Hub price. Prices at Transcontinental Pipeline's Zone 6 delivery point (serving New York City) bottomed out at $2.23/MMBtu on Friday, before rising to $3.41/MMBtu on Monday and ending the report week at $2.71 /MMBtu. Prices at the Algonquin Citygate (serving Boston) settled at $2.59/MMBtu on Friday and ended the week at $3.00/MMBtu yesterday.

Nymex at 6-month low. Nymex prices declined this week, falling from $4.170/MMBtu last Wednesday to $4.119/MMBtu yesterday. Prices Tuesday settled at $4.097/MMBtu, their lowest level of the near-month contract since January. The price of the 12-month strip (the 12 contracts between August 2014 and July 2015) fell from $4.209/MMBtu last Wednesday to $4.159/MMBtu yesterday.

Supply and imports fall. Total natural gas supply fell this week by 0.2%, with dry production declining 0.1% and net imports falling 0.8%, according to data from Bentek Energy, with production declines in the Southwest offsetting increases in the Northeast. According to Bentek, Northeast production reached new highs this week, at 16.5 Bcf/d, with the newly completed Seneca Lateral in Ohio supporting greater volumes. Overall U.S. dry production is currently 4.9% greater than its year-ago levels.

Consumption rises slightly. Total consumption rose 1.9%, according to Bentek data. Consumption of natural gas for power generation rose 3.7%, with higher volumes at the beginning of the week more than offsetting weather-related declines at the end of the week. Residential and commercial consumption rose at the end of the report week, possibly the result of the polar vortex bringing low temperatures in the 40s and 50s to parts of the Midwest.

more price data

Storage

Triple digit inventory growth resumes. The net injection reported for the week ending July 11 was 107 Bcf, 42 Bcf larger than the 5-year average net injection of 65 Bcf and 45 Bcf larger than last year's net injection of 62 Bcf. Working gas inventories totaled 2,129 Bcf, 608 Bcf (22.2%) less than last year at this time, and 727 Bcf (25.5%) below the 5-year (2009-13) average.

Storage build is higher than market expectations. Market expectations called for a build of 100 Bcf. When the EIA storage report was released at 10:30 a.m., the price for the August natural gas futures contract decreased 8 cents to $3.97/MMBtu on the Nymex.

From the week ending on April 4 through the week ending on July 11, net storage injections have totaled 1,307 Bcf, versus 1,037 Bcf for the same 15 weeks in 2013, and 1,042 Bcf for these weeks between 2009 and 2013, on average. The average unit value of what storage holders put into storage from April 4 to July 11 was $4.55/MMBtu, 16% higher than the average value for the same 15 weeks last year of $3.94/MMBtu. The highest winter-month Nymex price (for the January 2015 contract) in trading for the week ending on July 11 averaged $4.40/MMBtu. This is 16 cents more than the current Nymex August contract price. A year ago, the difference was 33 cents/MMBtu, providing a bit more financial incentive to buy and store gas in the summer for sale in the winter.

There are currently 16 more weeks in the injection season, which traditionally occurs April 1 through October 31; although, in many years, injections continue into November. EIA forecasts that the end-of-October working natural gas inventory level will be 3,431 Bcf, which, as of July 4, would require an average injection of 81 Bcf per week through the end of October. EIA's forecast for the end-of-October inventory levels are below the 5-year (2009-13) average value of 3,837 Bcf. To reach the 5-year average by October 31, average weekly injections through the end of October would need to be 107 Bcf.

All three regions post larger-than-average builds. The East, West, and Producing regions had net injections of 65 Bcf (21 Bcf larger than its 5-year average injection), 13 Bcf (5 Bcf larger than its 5-year average injection), and 29 Bcf (17 Bcf larger than its 5-year average injection), respectively. Storage levels for all three regions remain below their year-ago and 5-year average levels.

Temperatures during the storage report week were normal. Temperatures in the Lower 48 states averaged 74.7 degrees for the week, similar to the 30-year normal temperature and 3.0 degrees cooler than during the same period last year.

more storage data

See also:



Natural gas spot prices
Spot Prices ($/MMBtu)
Thu,
10-Jul
Fri,
11-Jul
Mon,
14-Jul
Tue,
15-Jul
Wed,
16-Jul
Henry Hub
4.11
4.09
4.10
4.11
4.10
New York
2.34
2.23
3.41
3.05
2.71
Chicago
4.23
4.17
4.20
4.17
4.18
Cal. Comp. Avg,*
4.47
4.42
4.48
4.50
4.46
Futures ($/MMBtu)
August Contract
4.120
4.146
4.147
4.097
4.119
September Contract
4.113
4.136
4.140
4.094
4.113
*Avg. of NGI's reported prices for: Malin, PG&E citygate, and Southern California Border Avg.
Source: NGI's Daily Gas Price Index
Natural gas futures prices
Natural gas liquids spot prices


U.S. Natural Gas Supply - Gas Week: (7/9/14 - 7/16/14)
Percent change for week compared with:
 
last year
last week
Gross Production
4.99%
-0.13%
Dry Production
4.95%
-0.13%
Canadian Imports
-13.10%
-0.84%
      West (Net)
-20.15%
3.09%
      MidWest (Net)
11.72%
-1.16%
      Northeast (Net)
-106.28%
-136.67%
LNG Imports
-67.86%
-2.12%
Total Supply
3.21%
-0.18%
Source: BENTEK Energy LLC
U.S. Consumption - Gas Week: (7/9/14 - 7/16/14)
Percent change for week compared with:
 
last year
last week
U.S. Consumption
-4.6%
2.1%
Power
-13.2%
3.7%
Industrial
2.6%
0.1%
Residential/Commercial
8.3%
1.8%
Total Demand
-4.0%
1.9%
Source: BENTEK Energy LLC
Natural gas supply


Weekly natural gas rig count and average Henry Hub
Rigs
Fri, July 11, 2014
Change from
 
last week
last year
Oil Rigs
1,563
0.06%
12.37%
Natural Gas Rigs
311
0.00%
-14.09%
Miscellaneous
1
0.00%
-83.33%
Rig Numbers by Type
Fri, July 11, 2014
Change from
 
last week
last year
Vertical
377
-1.82%
-12.73%
Horizontal
1,276
0.63%
20.60%
Directional
222
0.00%
-17.47%
Source: Baker Hughes Inc.


Working Gas in Underground Storage
Stocks
billion cubic feet (bcf)
Region
2014-07-11
2014-07-04
change
East
1,044
979
65
West
358
345
13
Producing
727
698
29
Total
2,129
2,022
107
Source: U.S. Energy Information Administration
Working Gas in Underground Storage
Historical Comparisons
Year ago
(7/11/13)
5-year average
(2009-2013)
Region
Stocks (Bcf)
% change
Stocks (Bcf)
% change
East
1,276
-18.2
1,382
-24.5
West
450
-20.4
444
-19.4
Producing
1,011
-28.1
1,030
-29.4
Total
2,737
-22.2
2,856
-25.5
Source: U.S. Energy Information Administration


Temperature -- Heating & Cooling Degree Days (week ending Jul 10)
 
HDD deviation from:
 
CDD deviation from:
Region
HDD Current
normal
last year
CDD Current
normal
last year
New England
1
0
1
50
14
-39
Middle Atlantic
2
1
2
57
5
-40
E N Central
7
6
7
37
-16
-33
W N Central
3
0
3
54
-13
-28
South Atlantic
0
0
0
91
-3
-11
E S Central
1
1
0
72
-19
-8
W S Central
0
0
0
113
-7
-9
Mountain
0
-7
0
90
16
-12
Pacific
0
-5
0
67
29
1
United States
2
0
2
70
0
-19
Note: HDD = heating degree-day; CDD = cooling degree-day

Source: National Oceanic and Atmospheric Administration

Average temperature (°F)

7-Day Mean ending Jul 10, 2014

Mean Temperature (F) 7-Day Mean ending Jul 10, 2014

Source: NOAA/National Weather Service

Deviation between average and normal (°F)

7-Day Mean ending Jul 10, 2014

Mean Temperature Anomaly (F) 7-Day Mean ending Jul 10, 2014

Source: NOAA/National Weather Service