Natural Gas

• Continuing last week’s net decline, the Henry Hub price this week fell 8 cents from $4.25 per million Btu (MMBtu) on Wednesday, March 30, to $4.17 per MMBtu on Wednesday, April 6.
  
• At the New York Mercantile Exchange, the price of the near-month (May 2011) contract fell from $4.355 per MMBtu to $4.146 per MMBtu.
  
• Working natural gas in storage fell to 1,579 billion cubic feet (Bcf) as of Friday, April 1, according to EIA’s Weekly Natural Gas Storage Report.The natural gas rotary rig count, as reported by Baker Hughes Incorporated, rose by 11 to 891.
  
• A new study released by EIA estimated technically recoverable shale natural gas resources in the 14 regions studied outside of the United States at 5,760 trillion cubic feet (Tcf).

Natural gas prices fell by moderate amounts at most market locations across the country. The price of the Henry Hub fell 7 cents to end the report week at $4.17 per MMBtu. Temperatures were somewhat colder than normal in much of the Eastern United States, though warmer than normal in most areas west of the Mississippi River. The largest decline in prices occurred at Transcontinental Pipeline’s Zone 6 pricing point for delivery into New York City, where prices fell on the week from $4.87 per MMBtu to $4.59 per MMBtu. However, at Zone 6, prices closed at $4.98 per MMBtu after trading last Thursday. A number of other pricing points in the Northeast United States jumped above $5 on Friday, somewhat surprisingly, as Northeast temperatures warmed up slightly (though mostly remained in the 40s) going into the weekend.

Supply fell slightly during the week, as production remained flat and both imports from Canada and LNG fell. Total supply dropped 0.7 percent from the previous week, but remains 4 percent higher than the level for the comparable week last year. Consumption also dropped by 16 percent week over last week, with the bulk of the decline coming from the residential and commercial sectors. Residential and commercial consumption was 79 percent greater than the same week last year; however, during the comparable week last year average temperatures were much warmer than normal, according to the National Oceanic and Atmospheric Administration’s Climate Prediction Center. Though supply remained relatively flat from last week, production hit a daily record at 64.5 Bcf on Thursday, March 31.

U.S. exports to Mexico have increased since the March earthquake and tsunami in Japan. The earthquake and tsunami damaged Japan’s nuclear generation capacity, creating a need for more natural gas for power generation. According to BENTEK Energy Services, LLC, LNG cargoes going to Sempra’s Costa Azul LNG import terminal on the coast of Baja California, Mexico, have been diverted to Japan. As a result, the United States has boosted its pipeline exports to Mexico, according to BENTEK.

Future prices followed a pattern similar to that of spot prices during the report week. At the NYMEX, the price of the near month contract fell by 20.9 cents, from $4.355 per MMBtu to $4.146 per MMBtu. The price of the 12-month strip (the average of the 12 futures contracts from May 2011 to April 2012) fell from $4.724 per MMBtu last week to $4.569 per MMBtu yesterday.

Working natural gas in storage fell to 1,579 Bcf as of Friday, April 1, according to EIA’s WNGSR (see Storage Figure). After a 45-Bcf net withdrawal, stocks are now just 10 Bcf above the 5-year average, down from 68 Bcf last week. The net withdrawal contrasts with the first net injection of the year, which occurred during the previous week. The week also reverses a six week trend of lower draws or higher injections than average.

The net withdrawal was the result of a major draw in the East Region, partially offset by small injections in the West and Producing Regions. The 52 Bcf net withdrawal in the East Region was partly offset by net injections of 5 Bcf and 2 Bcf in the West and Producing Regions respectively. While draws are not unusual for the East region at this time of year, but the size of the draw was much larger than the average draw of just 4 Bcf. Unusually cold weather through the entire East Region is largely responsible.

Temperatures in the lower 48 States during the week ending March 31 were 5.9 degrees cooler than normal and 6.6 degrees cooler than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 42.1 degrees, a full 7.0 degrees colder than last week (see Temperature Maps and Data). Every region saw colder than normal weather with the exception of the Mountain Region which was nearly equal to normal. The East North Central region was the coldest relative to normal, with temperatures averaging 11.0 degrees colder and nearly 47 percent more heating degrees than normal.

EIA Study Reports Abundant International Shale Resources. EIA on April 5 released World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States, a study examining 48 shale basins in 32 countries that were selected for relative near-term promise and the availability of geologic data. According to the assessment, the international shale resource base is vast, with an initial estimate of technically recoverable resources in the areas of the 32 countries in the 14 regions studied (not including the United States) of 5,760 trillion cubic feet (Tcf). In the United States, there are 862 Tcf of technically recoverable shale gas resources. Shale gas has taken on greater importance in the United States in recent years, making up 23 percent of total production in 2010. The study assesses whether other countries have similar opportunities to develop shale resources. Two groups can benefit most from expanded shale production, according to EIA. These groups are countries that currently depend heavily on imports but have ample shale resources, and countries that already produce large amounts of natural gas and have shale resources. The study excluded the following: countries outside of the 32 studied (excluded countries and areas include Russia and the Middle East, which have vast conventional natural gas resources); some shale basins in the 32 countries studied, due to lack of available data; and offshore resources. EIA sponsored Advanced Resources International, Inc. to complete the study.

Colorado State Releases 2011 Hurricane Forecast. In their April 6 forecast, Colorado State University (CSU) researchers predicted that the 2011 hurricane season will have significantly more activity than the average 1950-2000 season. The current forecast is an update to a December 2010 forecast, and while still predicting a more active than normal season, the April update calls for a slightly less active season than the December forecast did. The researchers predicted 9 hurricanes (compared to an average of 5.9) and 16 named storms (compared to an average of 9.6). The probability for one major hurricane (category 3, 4, or 5) tracking into the Caribbean is 61 percent, compared to an average probability of 42 percent. CSU researchers predicted the probability for a major hurricane making landfall on the Gulf Coast (from the Florida Panhandle to Brownsville, Texas) is 47 percent, compared to an average of 30 percent. The forecast is available here: http://hurricane.atmos.colostate.edu/outlooks/2011/april2011/apr2011.pdf

• Florida Gas Transmission Company, LLC expects to continue pipeline maintenance upstream of Station 8 until April 14. During this maintenance, Florida Gas Transmission will schedule up to 775,000 MMBtu per day, a reduction from normal operations when 1,075,000 MMBtu per day is scheduled. Additionally, Florida Gas Transmission will start maintenance on the units at their Vinton Interconnect with Transcontinental Pipeline in Zone 1 on April 15. This work is expected to be completed by the end of April. During that time, Florida Gas Transmission will schedule approximately 40,000 MMBtu per day, a reduction of 80,000 MMBtu scheduled during normal operations.
  
• Gulf South Pipeline Company, LC began pigging maintenance on its 42-inch expansion on April 6. This is the first of three planned pigging maintenance projects, is expected to last until April 13, and will restrict receipts in Area 16 (Carthage) to 750 million cubic feet (MMcf) per day from its 30-day average near 1.0 Bcf per day, according to BENTEK Energy. This maintenance could also potentially impact over 0.5 Bcf per day of production, as seven meters downstream of the Carthage Junction Compressor Station will be shut-in. The second and third phases of this planned maintenance will occur from April 19 through April 21, and end with a 12-hour maintenance period on April 26.
  
• The first of four planned maintenance projects started April 4 on the Northern Border Pipeline. The work on Compressor Station 9 (downstream of the Bison interconnect, south of Morton, ND) has an estimated end date of April 15, and will limit capacity to approximately 2,156 MMcf per day through Glen During — a reduction of approximately 271 MMcf per day. The final three maintenance projects are expected to take place during the last half of April and through May.

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.