Natural Gas

• The past week was marked by two distinct trading markets — “before” and “after” the Memorial Day holiday. Cash markets were listless going into the holiday weekend but escalated Tuesday following an early heat wave that drifted into the East. The Henry Hub price advanced 27 cents per million Btu (MMBtu) for the week (6.2 percent) to close at $4.63 per MMBtu on June 1.
  
• Just prior to the heat wave, working natural gas in storage last week rose to 2,107 billion cubic feet (Bcf) as of Friday, May 27, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 83 Bcf, leaving storage volumes positioned 237 Bcf below year-ago levels.
• At the New York Mercantile Exchange (NYMEX), the July 2011 natural gas contract price gained in all but one day of the week, closing at $4.629 per MMBtu on Wednesday.
  
• The natural gas rotary rig count, as reported May 27 by Baker Hughes Incorporated, rose by 15 to 881 active units, representing the first gain in 3 weeks and the largest absolute increase since November. Meanwhile, oil-directed rigs were up 4 to 958, still maintaining the disparity between the two drilling objectives.

At the NYMEX, the price of the July 2011 contract increased 20.6 cents (4.7 percent) over the week from $4.423 per MMBtu last Wednesday to $4.629 per MMBtu yesterday. With the official start of summer still 19 days away, the NYMEX price rose in half of the trading sessions (Monday was an exchange holiday), likely due to forecasts of hotter weather continuing into next week, but gave back 3.7 cents yesterday possibly in response to reports of rising domestic natural gas production.

The Henry Hub price reflected the post-holiday price surge by advancing 6.2 percent from $4.36 per MMBtu last week to close at $4.63 per MMBtu yesterday. The Henry Hub price advance eclipsed that of the NYMEX and accomplished most of the increase in a single day (Tuesday).

End market natural gas prices followed the lead of their wholesale counterparts and advanced somewhat more vigorously. For example, the New York citygate increased by 32 cents per MMBtu to close at $5.03 per MMBtu, despite giving back 12 cents yesterday. Likewise, the Chicago citygate increased a more modest $0.27 per MMBtu and ended the week at $4.72 per MMBtu.

Despite the holiday respite, increasing natural gas consumption due to the cooling load was likely the chief catalyst contributing to price strength this week. According to estimates from BENTEK Energy Services, LLC, domestic gas consumption increased this week by 4.1 percent over last week. The power sector showed the largest absolute and percentage increase at 10.6 percent in response to increased air conditioning load demand created by the heat wave. Not to be outdone, both the residential/commercial sector and the industrial sector also posted 0.3 percent consumption increases during the week.

According to BENTEK estimates, the week’s average total nominal gas supply registered an increase of 0.9 percent from last week’s level. Domestic weekly gas production averaged over 64.7 Bcf per day, up 0.9 percent. Production never dropped below 64 Bcf per day the entire week and even saw two days where production exceeded 65 Bcf per day. Domestic production now stands 6.5 percent above this time last year. The week’s production gain was accompanied by a 1.2 percent increase in Canadian imports, which averaged just above 5.3 Bcf per day. Although this import level represents a reversal from the drop last week, Canadian imports now stand 16.1 percent below year-ago volumes. Supply also picked up slightly in the liquefied natural gas (LNG) arena where imports increased to over 1.1 Bcf per day during the week, but still remain 11.9 percent below year-ago levels.

Working natural gas in storage rose to 2,107 Bcf as of Friday, May 27, according to EIA’s WNGSR (see Storage Figure). The 83 Bcf net build is considerably lower than the 5-year average build for the week of 99 Bcf as well as last year’s build of 90 Bcf. This reverses two consecutive weeks of above average builds. Stocks are now 237 Bcf below last year’s level and 42 Bcf below the 5-year average.

Unusually for this year, the Producing Region saw the lowest relative build. The East and West Regions added 6 Bcf (11 percent) and 2 Bcf (13 percent) less than the average for the week, while the Producing Region added 8 Bcf (30 percent) less. However, the overall movement towards greater relative stocks in the Producing Region continues. Working gas stocks in the Producing Region remain 125 Bcf above average for the year. The East and West Regions’ stocks are 116 Bcf and 51 Bcf below average.

Temperatures in the lower 48 States during the week ending May 26 were wamer than normal but slightly cooler than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 66.6 degrees, 2.0 degrees warmer than the 5-year average and 0.9 degrees colder than last year (see Temperature Maps and Data). Every region of the country was warmer than normal with the exception of the Mountain and Pacific Regions in the West. Nationally, heating degree-days were 19 percent less than normal, but cooling degree-days were 29 percent above normal. As the weather continues to warm, cooling degree-days will become more important as natural gas is consumed for electric power.

Marketed Production Hits 64.84 Bcf/d in March. On May 31, 2011, EIA released the Natural Gas Monthly, which includes data through March 2011. Total marketed production grew to 64.8 Bcf/d, an increase of about 4 percent from the previous month (production in February, however, was relatively low due to wellhead freeze-offs). Working storage inventories ended March (the official end of the withdrawal period) at 1,581 Bcf, representing total withdrawals of 2,266 Bcf during the winter heating season. Inventories at the end of March 2011 were about 5 percent less than inventories for the same time in 2010. Total consumption declined from 87.5 Bcf/d in February to 71.3 Bcf/d in March, largely a reflection of declines in the residential and commercial sectors as heating degree-days declined. Consumption of natural gas for electric power generation and industrial consumption declined 8 percent and 12 percent, respectively.

Hydropower Continues to Abound in the Pacific Northwest. In an exceptionally strong season for hydropower in the Pacific Northwest, generation has remained elevated, following heavy rains over Memorial Day weekend. High generation is expected to continue as additional rain is forecast for this week, and as incoming warmer temperatures will lead to increased runoff from the Pacific Northwest’s largest snowpack in years, according to recent reports by BENTEK Energy. An oversupply of hydroelectricity led the Bonneville Power Administration (BPA) to issue a curtailment policy last month, which limits first thermal power generation (coal and natural gas), then wind generation. According to BENTEK, thermal generation has dropped close to zero as a result of recent implementation of the curtailment policy. Since implementation of the policy, 49 GWh (from both thermal and wind generators) has been curtailed, according to BENTEK. More information from BPA is available at: http://www.bpa.gov/corporate/BPANews/ArticleTemplate.cfm?ArticleId=article-20110518-01

• Questar Pipeline Company has announced that it will complete repairs today, Thursday, June 2, at its compressor station in Greasewood, Colorado. Customers may now schedule flows under normal operating conditions to TransColorado Pipeline and the White River Hub. A mechanical failure required Questar to shut down the compressor station for repairs on Tuesday of this week; as a result, nominations were not accepted to TransColorado and White River Hub.
  
• On Friday, May 27, Northwest Pipeline Company on Friday said that it had discovered several mainline dents near its compressor station in Soda Springs, Idaho. As a result, the pipeline company removed a pipeline segment from service and was conducting investigations, during which available capacity at Soda Springs would be limited to 497 million cubic feet per day. With current nominations there exceeding this level, Northwest expected to be allocating capacity according to service priority.
  
• Northwest Pipeline also reported that the Jackson Prairie storage facility in Chehalis, Washington will upgrade its control system between June 1-7. During this time, the facility will not accept injection or withdrawal nominations. Northwest said that it will have very limited balancing capability while Jackson Prairie is unavailable.

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.