Natural Gas

• Natural gas spot prices rose this report week, as prices for energy products generally increased and the economic outlook improved. During the report week, the Henry Hub spot price increased by $0.12 per million Btu (MMBtu) to $3.49.
  
• At the New York Mercantile Exchange (NYMEX), futures prices increased significantly. The price of the futures contract for August delivery closed yesterday, July 22, at $3.793 per MMBtu, more than 50 cents higher than the closing price the previous Wednesday.
  
• Working gas in underground storage as of Friday, July 17, is estimated to have been 2,952 billion cubic feet (Bcf), which is 18.4 percent above the 5-year (2004-2008) average. During the week ending last Friday, implied net injections of natural gas into underground storage totaled 66 Bcf.
  
• The price of the West Texas Intermediate (WTI) crude oil contract increased by more than 5 percent during the report week. Price increases occurred during 4 of the 5 trading days of the report week, resulting in a cumulative increase of $3.09 per barrel since Wednesday, June 15. The WTI average price yesterday was $64.58 per barrel, or $11.13 per MMBtu.

Prices increased at nearly all market locations in the lower 48 States for the second consecutive week, interrupting a recent trend of declining spot prices. This report week’s largest price gains occurred in the Rockies and California markets, as natural gas demand in the electric power sector grew to meet air-conditioning load. Prices in the eastern United States also increased, despite moderate temperatures. In addition, a number of firms have reported improved results in quarterly earnings reports, likely contributing to relative strength in natural gas prices. Industrial demand accounts for about 30 percent of natural gas consumption annually, causing the performance of companies to influence natural gas prices significantly. The Henry Hub spot price on Wednesday, July 22, averaged $3.49 per MMBtu, which was 3.6 percent higher than the average price the previous Wednesday. On a regional basis, spot markets along the Gulf Coast in Louisiana and East Texas registered average price increases on the week of $0.13 and $0.08 per MMBtu, respectively. Average regional prices yesterday were $3.47 in Louisiana and $3.32 in East Texas.

Prices in the Rockies and California increased the most this week, as temperatures in the western United State rose sharply. With reports of temperatures over 100 degrees in California and over 90 degrees in Denver and Calgary, demand in the electric power sector for natural gas likely increased as air-conditioning needs rose. At Rockies trading locations, the average price as of July 22 was $3.23 per MMBtu, or 8.6 percent higher than the previous Wednesday. The Rockies regional price continued to be the lowest in the country. In California, price increases averaged $0.22 per MMBtu, as hot temperatures likely increased demand for the State’s substantial natural gas-fired electric power capacity. The price for natural gas supplies at the Pacific Gas & Electric Citygate near San Francisco finished the week at $3.71 per MMBtu, an increase of 26 cents from the previous Wednesday.

Despite mild temperatures during the report week, every market location in the Northeast recorded slight increases in prices since last Wednesday. The average price in the Northeast region yesterday was $3.77 per MMBtu, which was $0.17 higher than the previous Wednesday. The Northeast generally experiences the highest prices in the country (outside Florida during the summer), in part because of pipeline transportation costs for deliveries from the Gulf of Mexico region. The average spot price for delivery in New York off Transcontinental Gas Pipe Line (Transco Zone 6-NY) increased by $0.17 per MMBtu to $3.87 this week, which reflects a premium of $0.38 per MMBtu to the price at the Henry Hub.

Despite recent price increases, spot natural gas continues to trade near 6-year lows, with daily market prices generally between $3 and $4 per MMBtu across the country. Recent reductions in natural gas price levels may be related to continued strength in domestic production, specifically from supplies from unconventional gas fields such as the Barnett Shale in Northeast Texas and the Haynesville Shale in Louisiana. Although recent quarterly earnings reports suggest economic activity is beginning to recover, reduced demand continues to be evident in the industrial sector. The EIA’s Short-Term Energy Outlook (STEO) (July 2009) estimated industrial consumption in the first half of 2009 was 11 percent lower compared with the similar time period in the previous year. The combined impact of these influences on the recent natural gas supply and demand balances has resulted in an inordinately high amount of natural gas in storage for this time of year (See storage section below).

The pace of deliveries of liquefied natural gas (LNG) imports in recent weeks has increased considerably this year and in comparison with this time last year, likely contributing to a perception of ample supply in the market and lower overall prices. Send-out from U.S. LNG import terminals has averaged 1.3 billion cubic feet per day (Bcf/d) for the three months ending June 30, compared with 0.9 Bcf/d for the similar time period last year and 1.0 Bcf/d in the first quarter of 2009. Although deliveries have not increased to levels recorded in 2007 (when the United States received a record-high volume of 771 Bcf for the year), weak demand for LNG elsewhere in the world is leading to a greater number of flexible LNG cargoes being directed to the United States. U.S. imports of LNG are projected to increase by 45 percent from year-ago levels to 507 Bcf in 2009, according to the STEO.

At the NYMEX, the price of the near-month contract (for August delivery) increased 51 cents per MMBtu during the report week to $3.793, as prices for competing energy products increased and the economy appeared to be showing signs of improvement. The largest price movement of the week for the near-term contract occurred on Thursday, July 16, as the August contract gained approximately 39 cents per MMBtu. This increase followed the release of updated storage statistics that suggested the rate of injections into underground storage, where inventories are at higher-than-average levels, is slowing. Upward price pressure during the report week also appeared to be related to the crude oil price, which increased by $3.09 per barrel. Despite the price increase this week, the difference in price compared with the August contracts from the previous 2 years continues to be stark: The August 2009 contract expired at $9.217 per MMBtu, while the August 2007 contract expired at $6.110.

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 $5.149 per MMBtu, representing an increase of about 39 cents since last Wednesday. Beginning with the August 2009 contract, futures prices increase steadily through the beginning of 2010. The highest-priced contract in the futures strip until the end of next winter is the February 2010 contract, which closed at $5.725 per MMBtu on July 22.

Working natural gas in storage totaled 2,952 Bcf as of Friday, July 17, 2009, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection during the report week was 66 Bcf, bringing the current level of supplies in underground storage to 18.4 percent more than the 5-year (2004-2008) average for this time of year. Current stocks exceed the 5-year average by 458 Bcf and last year’s level by 568 Bcf. The average net injection during the comparable week over the past 5 years totaled 62 Bcf, while the net injection for the comparable week last year totaled 87 Bcf

At 66 Bcf, last week’s net implied injection is the smallest reported since the week ending April 17, 2009. The smaller injection relative to prior reports this year likely resulted from higher demand for natural gas in electric power sector. During the report week, the average temperature in the United States as reported by the National Weather Service was 74.6 degrees Fahrenheit, compared with 73.4 degrees the prior week While temperatures for the country as a whole were moderate compared with average, the number of cooling degree-days was 24 percent higher than normal in the Southwest region (see Temperature Maps and Data). The Southwest region includes Texas, which has a substantial amount of natural-gas fired electric power plants.

A significant differential between current spot prices and prices for NYMEX futures contracts for next winter delivery may be providing a strong economic incentive for the high level of storage activity this year. On Friday, July 17, the date of the inventory measurement in this week’s report, the Henry Hub average price was $3.39 per MMBtu, while the average price for delivery next winter (November through March) was $5.35 per MMBtu. Traders on the futures market may have locked in this difference of nearly $2 per MMBtu and covering their risk exposure by storing supplies until next winter.

EIA Proposes Extending Oil and Natural Gas Reserves Survey Forms. The Energy Information Administration (EIA) on July 15 published a notice in the Federal Register announcing a proposed 3-year extension of its Oil and Gas Reserves System Survey Forms. The three forms EIA proposes to extend are Form EIA-23L, Annual Survey of Domestic Oil and Gas Reserves; Form EIA-23S, Annual Survey of Domestic Oil and Gas Reserves, Summary Level Report; and Form EIA-64A, Annual Report of the Origins of Natural Gas Liquids. EIA is not proposing changes to the forms. EIA requested comments on the proposed extension from both potential respondents to requests for information, and from potential users of collected information. The deadline for comments is September 14, 2009, and the posting is available at http://www.eia.doe.gov/oss/FRN-60-day-OOGRESERVES-2010.pdf

• Gulf South Pipeline announced that it will be accepting nominations of up to 175,000 decatherms (Dth) per day on the East Texas Expansion 42-inch line between July 24 and July 27 from the Carthage Expansion. The latest notice was an update to an earlier announcement indicating that the East Texas Expansion would be out of service for maintenance through the end of July. Twelve points were initially out of service as a result of the maintenance, including the pipeline’s interconnect with DCP Midstream’s East Texas Plant.
  
• Tennessee Gas Pipeline and Southern Star Central Pipeline initiated storage constraints over the last week. Both of these pipelines reported curtailments to interruptible storage injections across their systems. The restrictions will remain in effect until further notice. Furthermore, Tennessee announced that it will not accept transfers under the park and loan agreement into the Bear Creek storage facility in Louisiana, and will not accept any park agreements with withdrawals across the system for the next several months. Lastly, firm storage customers will be limited to their maximum daily injection quantity and will not be allowed any overruns anywhere on the Tennessee system.
  
• Rockies Express Pipeline lifted the force majeure on its Arlington compressor station in Carbon County, Wyoming, effective July 21. The pipeline initially declared force majeure on July 17, but did not disclose the event that precipitated the notice to its shippers. While the date of return to full service was initially expected to be Monday, July 20, the pipeline did not increase flows through the station to full capacity until the evening cycle on Tuesday.
  
• In its latest Hurricane Ike update, ANR Pipeline Company announced that it has completed inspection of the Eugene Island 275 receipt point in the Gulf of Mexico, clearing the point for nominations as of July 17. However, ANR also reported that 14 other locations continue to be unavailable for service as a result of hurricane-related damage.

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.