Natural Gas

• Since Wednesday, July 16, natural gas spot prices decreased at all markets in the Lower 48 States, with prices falling more than $1 per MMBtu at most locations during the period. Prices at the Henry Hub fell $1.26 per million Btu (MMBtu), or about 11 percent, to $9.89 per MMBtu.



• At the New York Mercantile Exchange (NYMEX), the futures contract for August delivery at the Henry Hub settled yesterday at $9.788 per MMBtu, declining $1.61 or about 14 percent since Wednesday, July 16.



• Natural gas in storage was 2,396 billion cubic feet (Bcf) as of July 18, which is about 1 percent below the 5-year average (2003-2007), following an implied net injection of 84 Bcf.



• The spot price for West Texas Intermediate (WTI) crude oil decreased $10.90 per barrel on the week to $123.73 per barrel or $21.33 per MMBtu. Crude oil prices are now $21.58 per barrel below the record level of $145.31 per barrel established on July 3.

Natural gas spot prices decreased on the week (Wednesday-Wednesday) at all market locations, with declines ranging between $0.48 and $2.60 per MMBtu, or 5 to 19 percent. The price declines over the period likely can be attributed to falling crude oil prices and easing concerns about the sufficiency of natural gas supplies following a larger-than-expected report of net injections into working gas storage last Thursday, July 17. These declines occurred despite the countervailing effects of sustained warm temperatures through out the Lower 48 States and the potential threat to offshore natural gas production by the formation of Hurricane Dolly in the Gulf of Mexico.

On a regional basis, prices declined between 9 and 16 percent since last Wednesday, July 16. By far the largest regional average price declines occurred in the Northeast region with prices falling $1.97 per MMBtu, or 16 percent since last Wednesday. Prices in the producing region along the Gulf of Mexico fell between $1.27 and $1.35 per MMBtu, or about 12 percent, on the week. Price decreases out west were less pronounced with the Arizona/Nevada and California regions falling $1.11 and $1.09 per MMBtu on average, respectively, since last Wednesday. The Midcontinent and Rocky Mountains regions posted the smallest average regional declines since last Wednesday of 79 to 84 cents per MMBtu.

Despite the declines since last Wednesday, July 16, prices at the Henry Hub remain at historically high levels for this time of year. Nevertheless, as a result of the declines since last Wednesday, prices are now at their lowest levels since April. At $9.89 per MMBtu, the Henry Hub spot price for natural gas is at its lowest level since April 9, and 3 cents below the level reported on April 1 at the start of the injection season. Since the beginning of the injection season, prices at the Henry Hub exhibited a general pattern of increasing prices, peaking at $13.31 per MMBtu on July 2, when prices began a downward trend. Prices at the Henry Hub have fallen $3.42 per MMBtu, or 26 percent, since July 2, but remain more than 65 percent above the level reported last year at this time.

The formation of Hurricane Dolly in the Gulf of Mexico resulted in shutins of offshore natural gas production, but the effects of the storm on production facilities appears to be limited and short-lived. Then-Tropical Storm Dolly led to some shutins of natural gas production in the Gulf of Mexico near South Texas, beginning on Sunday, July 20. According to the Minerals Management Service, 62 platforms and 8 rigs were evacuated as of July 23. These evacuations resulted in shutins of 606 million cubic feet, or roughly 8 percent of natural gas production in the Gulf of Mexico. After the hurricane passes, facilities are inspected. Once all standard checks have been completed, production from undamaged facilities is brought back on line. Facilities sustaining damage may take longer to bring back on line. However, some platforms already have been restored to operation.

At the NYMEX, the prices for natural gas delivery contracts through July 2009 fell between $1.04 and $1.63 cents per MMBtu since Wednesday, July 16. Prices for the 12-month futures strip (August 2008 through July 2009) averaged $10.096 per MMBtu as of Wednesday, July 23, falling by roughly 1.41 cents per MMBtu, or about 12 percent. Contracts for delivery next winter (December 2008 through March 2009) traded at an average premium of 84 cents per MMBtu relative to the spot price. Price differentials of this magnitude provide suppliers an economic incentive to inject natural gas into storage.

Working gas in storage increased to 2,396 Bcf as of Friday, July 18, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection of 84 Bcf into working gas was 27 Bcf above the 5-year average net injection of 57 Bcf and 14 Bcf above last year’s net injection of 70 Bcf for the same report week. At 2,396 Bcf, working gas in storage is now 347 Bcf below last year’s level at this time and 22 Bcf below the 5-year average. This is the second week in a row that working gas in storage has increased relative to the historical norms. The shortfall with respect to the 5-year average and last year’s level peaked in 2008 at 70 Bcf and 389 Bcf, respectively.

The larger-than-normal net injection occurred despite warmer-than-normal temperatures in the Lower 48 States. The National Weather Service’s degree-day data (see Temperature Maps and Data) indicate that the Lower 48 States on average posted cooling degree-days 4 percent above normal levels, and 10 percent above last year’s level. However, on a regional basis, cooling degree-days were mixed. Along the northern tier of the Lower 48 States, including the New England, Middle Atlantic, and East North Central Census Divisions, cooling degree-days were 4 to 12 percent above normal. Cooling degree-days also were well above normal in the Pacific Census Division. Meanwhile, cooling degree-days were at, or short of, normal levels in the remaining regions of the Lower 48 States, falling as much as 11 percent below normal. The downward trend of spot prices at the Henry Hub since July 2 may be contributing to the increased level of net injections that occurred during the period.

EIA Publishes Report on New Pipeline Capacity. The Energy Information Administration (EIA) published a report titled Additions to Capacity on the U.S. Natural Gas Pipeline Network: 2007, which examines new natural gas pipeline capacity added and the areas of the country where those additions were concentrated. Furthermore, the paper discusses proposed natural gas pipeline projects that may be developed between 2008 and 2010 and the market factors supporting these proposals. According to the report, U.S. natural gas pipeline construction activity accelerated in 2007 with capacity additions totaling about 14.9 Bcf per day. The latest additions were the largest yearly additions to date in EIA’s 10-year database of pipeline construction activity. In 2007, about 1,700 miles of pipeline were installed, which was more than in any year since 2003. The largest natural gas pipeline project completed in 2007 was Centerpoint Energy Company’s Perryville expansion project, which is a 172-mile pipeline with 1.2 Bcf per day of capacity. This pipeline links Texas interstate pipeline systems to Perryville, Louisiana, and it is just one of several expansions that will transport increased natural gas supplies from the Barnett Shale and Bossier Sands areas on the interstate system. More generally, during the year, the majority of expansion and capacity additions occurred in established corridors (for example, Gulf of Mexico to the Northeast or the Rockies to the West Coast). However, construction of the Rockies Express Pipeline, which will connect the Rockies with markets east of the Mississippi River, resulted in creation of a new transportation corridor. Currently proposed pipeline projects indicate that expansion likely will continue at a high rate. If all these current proposals are completed as scheduled, about 103 Bcf per day of pipeline capacity would be added to the national network between 2008 and 2010. However, it is unlikely that all of the proposed projects will be completed.

Daily Trading Volume for Natural Gas Futures Reaches a New Record. On July 17, the NYMEX set a daily volume records for total natural gas futures contracts traded on its electronic and open outcry trading platforms, as well as Chicago Mercantile Exchange’s (CME) Globex electronic trading platform. Total natural gas futures on the electronic and open outcry trading reached 327,942 contracts, surpassing the 270,987 contracts traded on June 19. Similarly, CME’s Globex recorded 293,656 trades for natural gas futures, higher than the 238,140 contracts recorded on June 19. Trading volume is an indirect, but widely cited measure of market liquidity, because more active markets, such as the stock market, tend to be more liquid. High trading volume implies a large number of available sellers and buyers, and readily-completed transactions without a significant price adjustment. Furthermore, theoretical studies have linked increased trading activity with higher liquidity. NYMEX launched the trading of its physically settled futures contracts for trading on CME’s Globex on September 5, 2006. Prior to that, NYMEX offered the financially-settled standard-sized and NYMEX miNY energy futures contracts for trading on the Globex on June 12, 2006. Currently, open outcry trading takes place daily between 9 a.m. and 2:30 p.m., Eastern Time, while the Globex platform allows trading to take place virtually 24 hours per day.

• Texas Eastern Transmission Corporation has experienced an unplanned unit outage at Monroe Compressor Station in northeast Louisiana, and restrictions of interruptible and some firm services are possible. Texas Eastern expects restrictions in pipeline flows at the Monroe station likely will remain in place until Friday, July 25.



• ANR Pipeline Company has completed unplanned maintenance at its Patterson, Louisiana, compressor station. As a result, the pipeline on Monday, July 21, was able to suspend all associated delivery capacity restrictions that had been implemented the prior Wednesday between the Patterson and Eunice compressor station in the pipeline’s Southeast Gathering Area. Capacity had been reduced to 507,000 MMBtu per day, with acknowledgement that gas flows under interruptible contracts could be interrupted.



• Trunkline Gas Company is experiencing high levels of the basic sediment and water content at the Patterson Separation Facility in South Louisiana. The pipeline company on Wednesday, July 21, announced that field personnel will be inspecting receipt locations for flows not meeting the pipeline’s specifications for sediment and water content. Trunkline requires basic sediment and water content shall not exceed 0.5% by weight of the total gas flow.



• Southern California Gas Company will continue maintenance at its Aliso Canyon storage facility in Los Angeles County, California, until August 8. The work began in June, resulted in a reduction of 750 million cubic feet (MMcf) per day of withdrawal capacity.



• Northwest Pipeline Corporation provided an update of maintenance at compressor stations on its system. As of Wednesday, July 23, anomaly investigations between the Caldwell and Baker compressor stations (the segment of the pipeline crossing the Idaho-Oregon border) were completed, and the Caldwell Compressor Station in Idaho has been returned to its design capacity of 451,000 decatherm (Dth) per day. Northwest still is performing repairs at the Muddy Creek Compressor Station in Lincoln County, Wyoming. Flows at Muddy Creek are restricted to 160,000 Dth per day until further notice.

See Weekly Natural Gas Storage Report for additional Natural Gas Storage Data.
See Natural Gas Analysis for additional Natural Gas Reports and Articles.
See Short-Term Energy Outlook for additional Natural Gas Prices, Supply, and Demand.