Natural Gas

• A touch of autumn in the air combined with hopes for the eventual return of winter was likely the catalyst enabling natural gas prices to recapture the $4 mark this week despite an environment of negative consumption fundamentals and continued strong production. At the New York Mercantile Exchange (NYMEX), the October 2011 natural gas contract advanced 9.9 cents per million Btu (MMBtu) to close at $4.039 per MMBtu over the week.
  
• The Henry Hub price oscillated in a similar but narrow range before closing up 5 cents for the week at $4.01 per MMBtu on September 14.
  
• Working natural gas in storage rose last week to 3,112 billion cubic feet (Bcf) as of Friday, September 9, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 87 Bcf, leaving storage volumes positioned 140 Bcf under year-ago levels.
  
• The natural gas rotary rig count, as reported September 9 by Baker Hughes Incorporated, fell by 3 to 892 active units. Meanwhile, oil-directed rigs were down 7 to 1,057 units.

Prices

At the NYMEX, the October 2011 contract increased 9.9 cents (2.5 percent) from $3.940 per MMBtu last Wednesday to $4.039 per MMBtu yesterday. The contract surged 15.4 cents over Tuesday and Wednesday in a possible mind set shift to hopes of more Winter-like loads occurring later in the future despite indications of continued robust short-term production and lack of near-term supporting weather loads.

The Henry Hub price echoed the week’s general cash market price increase to recapture the $4 handle by rising 1.2 percent from $3.96 per MMBtu the previous Wednesday to $4.01 per MMBtu yesterday. As the accompanying table shows, the Henry Hub cash price meandered in a narrow 3 to 4 cent range most of the week before advancing 9 cents the last two days. On Monday and Tuesday, the Henry Hub price was less than the NYMEX October futures contract which could have been an incentive to spur purchase of attractively-priced gas for storage and served to close the gap with the NYMEX futures price.

End-market natural gas prices generally followed the lead of their wholesale counterparts and responded in kind to upstream gyrations despite neutral weather prospects. The New York citygate price, which started the week at $4.20 per MMBtu showed a 3 cent price range until starting upward on Monday. The New York citygate price increased by $0.08 per MMBtu over the period (Wednesday to Wednesday) to close at $4.28 per MMBtu (up 1.9 percent). During the same period, the Chicago citygate price rose $0.13 per MMBtu and ended the week at $4.10 per MMBtu (up 3.2 percent).

In a swing to the approach of more benign fall temperatures, consumption registered a modest decline for the week. According to estimates from BENTEK Energy Services, LLC, domestic gas consumption decreased this week by 1.9 percent over last week. The power sector led the decrease with a loss of 4.1 percent, largely reflective of regions in Texas which finally returned to more seasonal temperatures. The residential/commercial sector posted a modest 0.2 percent decrease in consumption while the industrial sector also saw a token 0.1 percent decline.

In the midst of this week’s decreasing consumption yet narrow price environment, overall supply was up significantly. According to BENTEK Energy estimates, the week’s average total nominal gas supply posted a 3.3 percent increase from last week’s level. Domestic weekly dry gas production averaged 62.1 Bcf per day (up 3.3 percent) from the previous week. Domestic dry gas production now stands 7.5 percent above this time last year. The week’s production gain was further augmented by a 4.0 percent increase in Canadian imports averaging 5.2 Bcf per day. However, Canadian imports remain 16.8 percent below year-ago volumes. Any supply gains remained anemic in the liquefied natural gas (LNG) arena during the week where imports came in at 380 million cubic feet (MMcf) per day and remain 52.7 percent below year-ago levels.

Storage

Working natural gas in storage rose to 3,112 Bcf as of Friday, September 9, according to EIA’s WNGSR (see Storage Figure). Following a net injection of 87 Bcf from the previous week, stocks are now 140 Bcf below last year and 52 Bcf less than the 5-year average. The injection was less than last year’s build of 96 Bcf but larger than the 5-year average injection of 79 Bcf.

The East Region registered its fifth consecutive week of above average builds. The region’s deficit to the 5-year average continues to shrink after a build that was 7 Bcf above average. The East Region remains a significant 89 Bcf below the 5-year average. The Producing Region is now 37 Bcf above the 5-year average while the West Region is equal to the 5-year average after a slightly smaller than normal build.

Temperatures during the week ending Thursday, September 8, cooled off considerably, averaging 71.1 degrees, 3.7 degrees cooler than last week(see Temperature Maps and Data). Temperatures were typical of this time of year, averaging 0.9 degrees warmer than normal and 0.1 degrees warmer than last year. Regionally, temperatures were higher than normal in the West and Northeast, offset by some cooler than normal regions in the South and Midwest. Cooling degree-days were about 17 percent above average for the country as a whole.

Other Market Trends

BOEMRE Reorganization to be Completed in October. The Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE) will divide into two entities in October, according to notices released by the agency. This will complete a plan announced in May 2010 to divide the former Minerals Management Service (MMS) into three agencies (the first phase of the plan was completed a year ago with transfer of revenue collection functions). The revenue collection agency, the Bureau of Ocean Energy Management (BOEM), will be responsible for managing development of offshore resources, while the new Bureau of Safety and Environmental Enforcement (BSEE) will enforce safety and environmental regulations. The division of the agencies separates resource management from safety oversight and strengthens the role of environmental review in the agency. In May 2010, the MMS was reorganized and split into three entities: one that would handle revenue collection and royalty issues; a second to ensure responsible development of offshore resources; and a third to enforce safety and environmental regulations.

Natural Gas Rigs Drop for Third Consecutive Week. The natural gas rotary rig count fell by 3 to 892, according to data released on September 9 by Baker Hughes Incorporated. This is the third consecutive week natural gas rigs have fallen, though declines have been small each week. The oil rig count, which had risen for 19 consecutive weeks until the beginning of September, also fell this week, to 1,057. This number, however, is still historically very high. Rigs in all categories, horizontal, vertical, and directional (which include both natural gas and oil rigs), posted small declines week over week. Most states saw somewhat small changes in their rig counts, but Texas and Oklahoma were two notable exceptions. In Texas, the total rig count fell from 898 the week ending September 2 to 884 the week ending September 9. In Oklahoma, on the other hand, total rigs rose from 195 to 203, according to Baker Hughes.

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.