Natural Gas

Overview: Thursday, June 28, 2007 (next release 2:00 p.m. on July 6, 2007)

Since Wednesday, June 20, natural gas spot prices decreased at virtually all markets in the Lower 48 States outside the Rocky Mountains and Northeast regions. Prices at the Henry Hub declined 65 cents per MMBtu, or 9 percent, since Wednesday, June 20, to $6.74 per MMBtu, posting its lowest level since March 19. At the NYMEX, the futures contract for July delivery at the Henry Hub expired yesterday (June 27) at $6.929 per MMBtu, falling 46 cents per MMBtu, or 6 percent since last Wednesday, June 20. During its tenure as the near-month contract, the futures contract for July delivery at the Henry Hub posted a decline of $1.012 per MMBtu or nearly 13 percent. Natural gas in storage was 2,443 Bcf as of June 22, which is 18 percent above the 5-year average (2002-2006). The spot price for West Texas Intermediate (WTI) crude oil gained $0.48 per barrel on the week (Wednesday-Wednesday) to $68.98 per barrel or $11.89 per MMBtu.  

Prices:

Natural gas prices fell at virtually all market locations since last Wednesday, June 20, with declines of 50 to 90 cents per MMBtu or about 6 to 12 percent prevailing at most market locations. Overall softness in the natural gas market likely accounted for the widespread declines, as gradually warming temperatures in some areas of the Lower 48 States were insufficient to reverse the trend of declining prices. On a regional basis, price declines averaged between 24 and 83 cents per MMBtu, or 3 and 12 percent, since last Wednesday, June 20.The largest price decreases since last Wednesday, June 20, occurred principally in the California, West Texas, and Arizona/Nevada regions, where prices fell by more than 81 cents per MMBtu on average.By far the smallest decreases occurred in the Northeast and Rocky Mountains regions, where prices fell by 24 and 31 cents per MMBtu on average, respectively. Several market locations in the Northeast and Rocky Mountains regions reported slight gains since Wednesday, June 20, because of significant electric generation demand for natural gas. The New York citygate posted the highest price in the Lower 48 States and largest price hike since last Wednesday, June 20, climbing 11 cents per MMBtu to $8.13 per MMBtu.Elsewhere, average price decreases by region exceeded 53 cents per MMBtu. Despite these declines, prices generally exceeded levels reported last year at this time, with prices at the Henry Hub $0.77 per MMBtu or 13 percent above last year's level. The principal exception to the year-over-year price increases occurred in the Rocky Mountains region, where prices at selected markets were between $1.58 and $1.78 per MMBtu or about 30 and 33 percent below last year's level.  

At the NYMEX, prices for the futures contracts for delivery in the next 12 months generally decreased, with the 12-month futures strip (July 2007 through June 2008) falling about 41 cents per MMBtu, or about 5 percent, since last Wednesday, June 20. The price of the NYMEX futures contract for July delivery at the Henry Hub expired at $6.929 per MMBtu on Wednesday, June 27, falling 46 cents per MMBtu, or 6 percent, since last Wednesday, June 20. At $6.929 per MMBtu, the July 2007 contract recorded the lowest expiry price since the February 2007 contact expired at $6.917 per MMBtu. Prices for delivery in the ensuing months through the end of the upcoming heating season (March 2008) decreased between 44 and 51 cents per MMBtu.Overall, the 12-month futures strip (July 2007 through June 2008) traded at a premium of about $1.31 per MMBtu relative to the Henry Hub spot price, averaging $8.05 per MMBtu as of Wednesday, June 27.These relative pricing patterns reflected ample incentives for suppliers to inject natural gas into storage, increasing the spot price of gas relative to the 12-month futures strip.  

  Recent Natural Gas Market Data  

Storage:

Working gas in storage totaled 2,443 Bcf as of Friday, June 22, which is 18 percent above the 5-year average inventory level for the report week, according to EIA's Weekly Natural Gas Storage Report (see Storage Figure). As of June 22, stocks were 90 Bcf below the 2,533 Bcf in storage at this time last year, yet still exceeded the 5-year average by 372 Bcf. This marks the ninth consecutive week that storage levels increased relative to last year's level. On the week, net injections into working gas storage totaled 99 Bcf compared with the 5-year average injection of 92 Bcf and last year's net injection of 68 Bcf for the same report week. Moderate temperatures throughout the Lower 48 States likely contributed to the above-normal injections (see Temperature Maps). Nevertheless, cooling degree-days were 15 percent above normal levels on average in the Lower 48 States, exceeding normal levels in each of the Census Divisions outside of the West South Central region.

 Other Market Trends:

Natural Gas Rigs Drilling Reaches Another Record: Surpassing the previous week's record-matching level, the number of rigs drilling for natural gas increased to 1,495 for the week ended June 22, 2007. According to the data published by Baker-Hughes Incorporated, this was the highest gas-directed rig count since record keeping by fuel type began in 1987. The number of natural gas rigs increased by 11 rigs over the previous week's count of 1,484. Furthermore, rigs drilling were about 9 percent higher than last year at this time, and more than 43 percent above the 5-year (2002-2006) average for the report week. So far this year, the rig count each week has exceeded the number of rigs drilling during the corresponding week of 2006.Natural gas rigs drilling remained consistently above 1,400 since the report week ended December 1, 2006, continuing the upward trend that has been apparent since 2002. Additionally, the number of rigs drilling between December 1, 2006, and June 22, 2007, was more than 10 percent higher than year-earlier levels. Historically high natural gas prices are a key factor motivating this relatively high level of drilling. Spot natural gas prices at the Henry Hub have averaged $7.28 per MMBtu since December 1, about 8 percent higher than the average price for the year-ago values during the same period.

 EIA Releases World Natural Gas Data for International Energy Annual 2005: The Energy Information Administration (EIA) on June 22, 2007, released world natural gas data for publication in the International Energy Annual 2005, which includes time series data for the years between 1980 and 2005 on consumption and production of dry natural gas measured both in cubic feet and Btu, along with the gross heat content of both dry natural gas consumption and production. Furthermore, the data include time series for dry natural gas imports and exports by country between 1990 and 2005, as well as detailed data for natural gas production and dry natural gas supply and disposition for the year 2004.

 Natural Gas Transportation Update:

• Kern River Gas Transmission Company reduced capacity at the Veyo Compressor Station in Washington County, Utah, to 2,015,000 decatherms (Dth) per day on Friday, June 22, citing operational conditions and warmer temperatures.The company announced that it plans to reduce capacity an additional 10,000 Dth per day starting Friday, June 29.
• Southern California Gas Company declared a high-linepack operational flow order (OFO) for Saturday and Sunday, June 23 and 24.Customers who delivered more than 110 percent of their actual gas usage will be assessed for Buy-Back charges.
• Pacific Gas and Electric Company, which serves customers in northern and central California, issued a Stage 2 high-inventory OFO for Saturday and Sunday, June 23 and 24.Penalties were $1 per Dth for exceeding a 6 percent tolerance on positive daily imbalances.The company issued a separate OFO from Tuesday to Thursday with a $1 per Dth penalty for exceeding a 5 percent tolerance level.
• Florida Gas Transmission Company declared an Overage Alert Day for market-area customers from Friday, June 22, through Tuesday, June 26, because of forecasts of 90-degree weather in Florida.There was a 25 percent tolerance associated with the restriction.
• Northwest Pipeline Corporation issued a Declared Deficiency Period on Tuesday and Wednesday, June 26 and 27, because of anomaly investigations near the Muddy Creek Compressor Station in Wyoming.During the period, Northwest reduced northbound capacity in the area to 615,000 Dth per day.Based on a design capacity of 652,000 Dth per day at the constraint point, the daily deficiency volume is 37,000 Dth.

Short-Term Energy Outlook