Natural Gas

• The threat of shut-in production arising from lower Mississippi River flooding likely sent prices up temporarily at nearly all domestic pricing points over the week but the gains failed to stick. The Henry Hub price lost a modest 7 cents per million Btu (MMBtu) (1.9 percent) to close at $4.15 per MMBtu on May 18.
  
• Working natural gas in storage rose to 1,919 billion cubic feet (Bcf) as of Friday, May 13, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 92 Bcf, leaving storage volumes positioned 235 Bcf below year-ago levels.
  
• At the New York Mercantile Exchange (NYMEX), the June 2011 natural gas contract price was the exception ending the week 1.7 cents above the previous Wednesday, reaching $4.198 per MMBtu after peaking on Monday from concern over the lower Mississippi flooding threat.
  
• The natural gas rotary rig count, as reported May 13 by Baker Hughes Incorporated, dropped by 16 to 874 active units. Meanwhile, oil-directed rigs were up 13 to 947, increasing the disparity between the two drilling strategies.

At the NYMEX, the price of the June 2011 contract increased a token 1.7 cents (0.4 percent) over the week from $4.181 per MMBtu last Wednesday to $4.198 per MMBtu yesterday despite peaking on Monday, likely over concerns of possible production curtailments arising from lower Mississippi River area flooding. The NYMEX price rose in 4 of the past 5 trading sessions and is apparently now focusing on hopes of warmer weather next week and reversing the decline in recent consumption levels.

The Henry Hub price reflected the general weekly price downtrend in a slightly oversupplied market, easing 1.9 percent from $4.23 per MMBtu last week to close at $4.15 per MMBtu yesterday. Ironically, the Henry Hub, much closer to the actual flood danger, showed a greater loss for the week than the NYMEX, thousands of miles away from the danger, which posted a token gain.

Prevailing downstream natural gas prices followed the lead of their wholesale counterparts and generally eased accordingly. The New York citygate was reflective of most pricing points showing an overall reduction for the week, losing 2 cents per MMBtu to close at $4.44 per MMBtu yesterday. The Chicago citygate ended the week unchanged at $4.27 per MMBtu, but did show a $0.19 per MMBtu spike on Monday with the flood threat news.

Aside from the flooding concern, overall moderating natural gas consumption due to light weather load (both heating and cooling), was likely the chief catalyst contributing to price softness during the week. According to estimates from BENTEK Energy Services, LLC, domestic gas consumption decreased this week by 0.8 percent from last week. The residential/commercial sector had the only gain in consumption, but with only a slight increase in weather load. This increase was largely offset by a of 7.7 percent drop in the power sector combined with a 0.7 percent decrease in the industrial sector.

According to BENTEK estimates, the week’s average total nominal gas supply posted a decrease of 0.1 percent from last week’s value. Domestic weekly gas production averaged 63.9 Bcf per day, down 0.3 percent for the week. However, production was above 64 Bcf per day for 3 of the past 7 days and remains 5.9 percent above this time last year. The week’s slight easing in production was combined with a 4.9 percent drop in Canadian imports, which averaged just above 5.3 Bcf per day. This import level represents still another decline from the previous week, and now stands 19.0 percent below year-ago levels. Supply picked up slightly in the liquefied natural gas (LNG) arena, where imports increased to almost 1.0 Bcf per day due to increased send out from Golden Pass, but remain 15.1 percent below year-ago levels.

Working natural gas in storage was 1,919 Bcf as of Friday, May 13, according to EIA’s WNGSR (see Storage Figure). The 92 Bcf net injection exceeded last year’s injection of 78 Bcf and the 5-year (2006-2010) average injection of 91 Bcf. Inventories, however, continue to run below the 5-year average of 1,955 Bcf despite high domestic production. Inventories are 235 Bcf below last year’s level of 2,154 Bcf. The East Region, the largest of the storage regions, accounts for much of the shortfall. Inventories in the East Region are 109 Bcf below the 5-year average and 183 Bcf below last year’s level.

This week’s build is the largest of this year’s injection season. The East saw a net build of 56 Bcf; the West, 11; and Producing, 25. Each region also injected their largest build of the official injection season, although the Producing region this week matched a 25 Bcf injection in March.

Temperatures in the lower 48 States during the week ending May 5 averaged 63 degrees, 2.9 degrees warmer than normal and 5.9 degrees warmer than last year. According to the National Weather Service’s degree-day data, temperatures were warmest in the West North Central, averaging 65.0 degrees, which is 7.3 degrees warmer than normal and 15.1 degrees warmer than last year (see Temperature Maps and Data). Both heating degree-days and cooling degree-days were at relatively low levels this week, implying little demand for heating or cooling. As temperatures warm, cooling degree-days will begin to have a major impact on natural gas storage figures, as high power demand is often driven by high temperatures during the summertime.

Excess Power Generation Could Limit Non-Hydro Sources in the Pacific Northwest. In the Pacific Northwest, runoff from the largest snowpack in years could lead to excess power generation, with power generation exceeding demand. As a result, on May 13, the Bonneville Power Administration (BPA) issued an interim Environmental Redispatch Policy that would limit power generation from natural gas and coal sources, and wind as a last resort. Under the action, the BPA will replace reductions in natural gas, coal, and wind sources with free hydropower. The Northwest River Forecast Center, according to the BPA, has forecast that the runoff from the Columbia River Basin will be the largest volume since 1999. The interim rule is in effect until March 30, 2012.

Natural Gas Rig Count Falls to 874. The natural gas rotary rig count fell by 16 this week to 874, according to data reported on May 13 by Baker Hughes Incorporated. Natural gas rigs are at their lowest level since January 2010, and oil rigs have risen over the past several weeks. Oil rigs as of May 13 totaled 947, an increase of 13 from the previous week. Year to date, oil rigs have risen 24 percent while natural gas rigs have fallen about 5 percent. Horizontal rigs (including both oil and natural gas), however, have continued to grow over the first 5 months of 2010, increasing about 10 percent to 1,047, as of Friday. At 563, vertical rigs have risen, though less dramatically.

• Owners of processing plants and pipelines joined the litany of infrastructure companies notifying customers of potential interruptions in service this week owing to flooding along the Mississippi River. Williams Companies, Inc., which owns Transcontinental Gas Pipeline (Transco), told customers it is closely monitoring the potential flooding and mitigation measures being utilized to control flooding of the Mississippi River in Louisiana. Transco is expecting water levels to begin to rise in the next several days at Station 62 near Bayou Black, Louisiana, on Transco’s Southeast Louisiana lateral (SELA). Current flowing production that could potentially be impacted is approximately 200 million cubic feet per day. Williams also informed shippers on Wednesday, May 18, that rising flood waters in southern Louisiana may impact its Larose processing and Paradis fractionation plants. Similarly, in separate notices to customers, Tennessee Gas Pipeline and Southern Natural Gas told customers that flooding may impact their facilities and recommended further monitoring of conditions.
  
• Columbia Gas Transmission Company this week said that an outage of Line P in Lawrence County, Kentucky, will continue until the week of May 21-28. Due to a fire and the resulting damage to unit #3 at Station Camp Compressor Station, Columbia Gas issued a force majeure last Friday, May 13. Columbia said it had reduced capacity Saturday at five meters from the firm contract level.
  
• Natural Gas Pipeline Company of America (NGPL) extended the maintenance period on its Moraine Lateral in Lake County, Illinois, to June 13. The maintenance requires the shut-in of three locations that had previously been scheduled to last through June 2.

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.