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Natural Gas Weekly Update

for week ending July 23, 2014  |  Release Date:  July 24, 2014  |  Next Release: July 31, 2014

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

In the News:

Growth of Utica production per rig outpaces other shale plays

During a session at the EIA conference last week, EIA announced that it will be adding a Utica Shale region to the resource plays featured in the Drilling Productivity Report (DPR) in August. The Utica region in the DPR will include all oil and natural gas production from a selected group of counties in Ohio (see map 2).

EIA's preliminary estimate for July 2014 natural gas production in Utica is about 1 billion cubic feet per day (Bcfd). Production data indicate that natural gas production growth from the Utica is on par with the growth in natural gas production in the Eagle Ford Shale in Texas, when comparing the first 20 months of activity in both those plays. This level of production is slightly higher than the production from the Haynesville formation in Louisiana, at its 20-month mark of activity, but is close to two-thirds lower than production levels in the Marcellus, which was producing more than 3 Bcfd in its 20th month of activity. Marcellus is currently the most productive U.S. shale formation, with recent estimates of production for June 2014 at 14 Bcfd.

Despite the relatively modest levels of production from Utica, estimates of Utica's production per rig show significantly steeper growth than what occurred in other locations at the beginning of their development. There are several reasons for this. Although Utica producers are currently very much in an experimental and exploration phase now, producers are entering the Utica with experience gained in producing from other major shale gas plays. Additionally, the southern dry gas window of the Utica has proven extremely productive for natural gas, with some wells achieving 30+ million cubic feet per day initial production rates.

Much of the Utica Shale lies underneath the Marcellus Shale in the northeastern United States, and also expands into Ohio. Looked at another way (see map 1), most of the Marcellus lies over the Utica, with some intermediate formations in between. Depths and thickness of both the Marcellus and Utica vary significantly across the plays depending on the location. In a diagram released by the Ohio Department of Natural Resource's Geological Survey of the generalized geology of a Utica Shale well in east central Ohio, Marcellus is at a depth of around 3000 feet, with Utica starting at 6000 feet—over 1 mile below the ground surface. Because much of the two shales overlap, some operators have cited the possibility of producing from each play using the same drilling pad location, although concurrent production would be unlikely, as surface equipment needed for producing wet/low-pressure Marcellus gas is different than what is needed to produce dry/high-pressure Utica gas.

More than 900 people from industry, government, and academia attended EIA's 2014 Energy Conference, held July 14 and 15 in Washington, DC, to discuss current and future challenges facing domestic and international energy markets and policymakers. Presentations from all conference sessions are available here.

Overview:

(For the Week Ending Wednesday, July 23, 2014)

  • Natural gas prices generally fell at most market locations this report week (Wednesday, July 16—Wednesday, July 23). The Henry Hub spot price declined from $4.10 per million British thermal unit (MMBtu) last Wednesday to $3.79 yesterday.
  • At the New York Mercantile Exchange (Nymex), the price of the near-month futures contract (August 2014) fell from $4.119/MMBtu last Wednesday to $3.762/MMBtu yesterday.
  • Working natural gas in storage rose to 2,219 Bcf as of Friday, July 18, according to the U.S. Energy Information Administration (EIA) Weekly Natural Gas Storage Report (WNGSR). A net increase in storage of 90 billion cubic feet (Bcf) for the week resulted in storage levels 20.2% below year-ago levels and 23.5% below the 5-year average for this week.
  • The Baker Hughes rotary rig count decreased by 4 to 1,871 active units this week. Natural gas rigs increased by 4 to 315, while oil rigs decreased by 9 to 1,554. Gas rigs are 54 units below last year's level, and oil rigs are 159 units greater than last year's level.
  • The average daily Mont Belvieu, Texas, natural gas plant liquids composite price for the week covering July 14 — July 18 decreased by 9 cents/MMBtu (0.9%) to $9.68/MMBtu. A 7.5% decline in the price of ethane lead the overall decline. Butane and isobutane fell by 0.5% and 0.1%, while propane was flat and natural gasoline rose by 0.7%.

more summary data

Prices/Demand/Supply:

Prices fall on cooler weather. The Henry Hub spot price continued a several week decline, falling from $4.10/MMBtu at the beginning of the week to $3.79/MMBtu yesterday. Outside of the Northeast, prices were universally lower, ending the report week 27 cents/MMBtu on average below last Wednesday. In the Northeast, prices fell during the first part of the report week, but rebounded on Monday and Tuesday as warmer weather temporarily returned to the area. Prices declined again on Wednesday, ending the report week down 11 cents/MMBtu on average versus last Wednesday. Prices at Transcontinental Pipeline's Zone 6 delivery point (serving New York City) fell to $2.44/MMBtu on Friday, before increasing to $3.17/MMBtu on Tuesday. On Wednesday, prices decreased to $2.71, ending the report week flat versus the previous Wednesday. Prices at the Algonquin Citygate (serving Boston) settled at $2.54/MMBtu on Friday, increasing to $3.38/MMBtu on Tuesday. Yesterday, prices dipped to $2.90/MMBtu, down 10 cents/MMBtu versus last Wednesday.

Nymex at 8-month low. Nymex prices declined this week, falling from $4.119/MMBtu last Wednesday to $3.762/MMBtu yesterday, their lowest level for the near-month contract since last November. The price of the 12-month strip (the 12 contracts between August 2014 and July 2015) fell from $4.159/MMBtu last Wednesday to $3.855/MMBtu yesterday. Weather forecasts are predicting continued mild weather over much of the country east of the Rockies, helping to put downward pressure on futures prices.

Supply increases and consumption decreases. Dry natural gas production increased by 0.3 Bcf/d, or 0.5%, from the previous week, to 68.6 Bcf/d. Dry production hit a record high on Monday of 69.1 Bcf, according to data from Bentek Energy. The record was confirmed by other industry analysts, with Genscape estimating that Lower 48 production climbed over 70 Bcf for the first time on Monday. Imports from Canada decreased 5.1% from last week. U.S. consumption fell 3.0%, mainly driven by a 5.6% decline in the power sector as most areas east of the Rockies experienced cooler-than-normal temperatures for much of the report week.

more price data

Storage

Working natural gas in storage rose to 2,219 Bcf. The net injection reported for the week ending July 18 was 90 Bcf, 44 Bcf larger than the 5-year average net injection of 46 Bcf and 47 Bcf larger than last year's net injection of 43 Bcf. Working gas inventories totaled 2,219 Bcf, 561 Bcf (20.2%) less than last year at this time, and 683 Bcf (23.5%) below the 5-year (2009-13) average.

Storage build is lower than market expectations. Market expectations called for a build of 96 Bcf. When the EIA storage report was released at 10:30 a.m., the price for the August natural gas futures contract increased 4 cents to $3.86/MMBtu on the Nymex.

From the week ending on April 4 through the week ending on July 18, net storage injections have totaled 1,397 Bcf, versus 1,080 Bcf for the same 16 weeks in 2013, and 1,088 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 18 was $4.52/MMBtu, 15% higher than the average value for the same 16 weeks last year of $3.93/MMBtu. The highest winter-month Nymex price (for the January 2015 contract) in trading for the week ending on July 18 averaged $4.26/MMBtu. This is 18 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 15 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 18, 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 peak storage value of 3,851 Bcf. To reach the 5-year average peak value, average weekly injections through the end of October would need to be 109 Bcf.

All three regions post larger-than-average builds. The East, West, and Producing regions had net injections of 56 Bcf (19 Bcf larger than its 5-year average injection), 11 Bcf (6 Bcf larger than its 5-year average), and 23 Bcf (19 Bcf larger than its 5-year average), respectively. Storage levels for all three regions remain below their year-ago and 5-year average levels.

Cooler temperatures during the storage report week support larger-than-average build. Temperatures in the Lower 48 states averaged 74.1 degrees for the week, 1.0 degree cooler than the 30-year normal temperature and 2.6 degrees cooler than during the same period last year.

more storage data

See also:

Utica and Marcellus shale plays
Select counties contributing to the Utica Shale play estimates in the DPR
Production, first 36 months since ‘start’ (start date)
New-well natural gas production per rig
Generalized geology and profile of a Utica Shale well prototype in East Central Ohio
(Click to enlarge)


Natural gas spot prices
Spot Prices ($/MMBtu)
Thu,
17-Jul
Fri,
18-Jul
Mon,
21-Jul
Tue,
22-Jul
Wed,
23-Jul
Henry Hub
4.03
3.91
3.84
3.80
3.79
New York
2.49
2.44
3.03
3.17
2.71
Chicago
4.08
3.97
3.93
3.93
3.93
Cal. Comp. Avg,*
4.31
4.20
4.22
4.18
4.17
Futures ($/MMBtu)
August Contract
3.954
3.951
3.849
3.772
3.762
September Contract
3.957
3.955
3.862
3.785
3.957
*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: (7/16/14 - 7/23/14)
Percent change for week compared with:
 
last year
last week
Gross Production
4.98%
0.49%
Dry Production
4.93%
0.48%
Canadian Imports
-17.21%
-5.12%
      West (Net)
-23.49%
-2.93%
      MidWest (Net)
18.76%
-2.76%
      Northeast (Net)
-128.39%
397.33%
LNG Imports
-74.29%
-9.89%
Total Supply
2.80%
0.10%
Source: BENTEK Energy LLC
U.S. Consumption - Gas Week: (7/16/14 - 7/23/14)
Percent change for week compared with:
 
last year
last week
U.S. Consumption
-9.0%
-3.0%
Power
-21.5%
-5.6%
Industrial
3.1%
-0.3%
Residential/Commercial
9.1%
-1.0%
Total Demand
-8.4%
-2.9%
Source: BENTEK Energy LLC
Natural gas supply


Weekly natural gas rig count and average Henry Hub
Rigs
Fri, July 18, 2014
Change from
 
last week
last year
Oil Rigs
1,554
-0.58%
11.40%
Natural Gas Rigs
315
1.29%
-14.63%
Miscellaneous
2
100.00%
-66.67%
Rig Numbers by Type
Fri, July 18, 2014
Change from
 
last week
last year
Vertical
366
-2.92%
-15.28%
Horizontal
1,288
0.94%
21.74%
Directional
217
-2.25%
-22.50%
Source: Baker Hughes Inc.


Working Gas in Underground Storage
Stocks
billion cubic feet (bcf)
Region
2014-07-18
2014-07-11
change
East
1,100
1,044
56
West
369
358
11
Producing
750
727
23
Total
2,219
2,129
90
Source: U.S. Energy Information Administration
Working Gas in Underground Storage
Historical Comparisons
Year ago
(7/18/13)
5-year average
(2009-2013)
Region
Stocks (Bcf)
% change
Stocks (Bcf)
% change
East
1,302
-15.5
1,419
-22.5
West
454
-18.7
449
-17.8
Producing
1,023
-26.7
1,034
-27.5
Total
2,780
-20.2
2,902
-23.5
Source: U.S. Energy Information Administration


Temperature -- Heating & Cooling Degree Days (week ending Jul 17)
 
HDD deviation from:
 
CDD deviation from:
Region
HDD Current
normal
last year
CDD Current
normal
last year
New England
0
-1
0
49
7
-29
Middle Atlantic
1
0
1
57
0
-30
E N Central
12
11
11
35
-21
-38
W N Central
14
11
14
43
-28
-35
South Atlantic
0
0
0
95
-2
-1
E S Central
2
2
2
78
-16
-11
W S Central
1
1
1
112
-12
-4
Mountain
0
-5
0
89
11
2
Pacific
0
-4
-1
62
20
12
United States
5
3
4
69
-4
-14
Note: HDD = heating degree-day; CDD = cooling degree-day

Source: National Oceanic and Atmospheric Administration

Average temperature (°F)

7-Day Mean ending Jul 17, 2014

Mean Temperature (F) 7-Day Mean ending Jul 17, 2014

Source: NOAA/National Weather Service

Deviation between average and normal (°F)

7-Day Mean ending Jul 17, 2014

Mean Temperature Anomaly (F) 7-Day Mean ending Jul 17, 2014

Source: NOAA/National Weather Service