Natural Gas

• Like autumn leaves floating down to earth, natural gas prices dropped decidedly from their $4 support branch this past week. In a whirlwind of generally unsupportive market fundamentals, the Henry Hub price closed down 25 cents for the week to $3.63 per million British thermal units (MMBtu) on October 5.
  
• At the New York Mercantile Exchange (NYMEX), the November 2011 natural gas contract dropped nearly 23 cents per MMBtu to close at $3.570 per MMBtu over the week.
  
• Working natural gas in storage rose last week to 3,409 billion cubic feet (Bcf) as of Friday, September 30, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 97 Bcf, leaving storage volumes positioned 78 Bcf under year-ago levels.
  
• The natural gas rotary rig count, as reported September 30 by Baker Hughes Incorporated, rose by 11 to 923 active units and now stands only 39 units below last year. Meanwhile, oil-directed rigs fell by 11 to 1,060 units.

Prices

The movement in the Henry Hub day-ahead price mirrored the fall of other trading locations in this week’s cash market by slumping 6.4 percent from $3.88 per MMBtu the previous Wednesday to $3.63 per MMBtu yesterday. As the accompanying table shows, the Henry Hub cash price progressed in an unwavering downward trend every day of the week until yesterday when a modest rally occurred spawned by expectations of increasingly low overnight temperatures.

At the NYMEX, the November 2011 contract decreased 22.9 cents (6.0 percent) from $3.799 per MMBtu last Wednesday to $3.560 per MMBtu yesterday. The contract dropped 18.2 cents from Thursday through Monday on the higher-than-average triple-digit storage build last week, a rebounding gas-directed rig count, and fading weather loads—either cooling or heating.

Most trading locations responded in kind to upstream price signals lamenting lackadaisical weather prospects. Spot prices at Transcontinental Pipeline’s Zone 6 trading point for delivery into New York City which started the week at $4.13 per MMBtu showed a 26 cent price loss per MMBtu over the period (Wednesday to Wednesday) to close at $3.87 per MMBtu (down 6.3 percent). During the same period, the Chicago citygate spot price fell $0.27 per MMBtu and ended the week at $3.64 per MMBtu (down 6.9 percent).

In spite of the mild fall temperatures present over the past week, consumption registered a modest increase for the week. According to estimates from BENTEK Energy Services, LLC (BENTEK), domestic gas consumption increased by 1.2 percent over last week. The residential/commercial sector posted a double-digit percent increase while the industrial sector tallied a 2.2 percent increase. However, the power sector posted a generally offsetting 11.8 percent drop reflecting the light weather load.

In the midst of the week’s anemic consumption pattern and declining price environment, overall supply was also off modestly. According to BENTEK estimates, the week’s overall average total nominal gas supply posted a 0.5 percent decrease from last week’s level. Domestic weekly dry gas production averaged 62.5 Bcf per day, 0.7 percent lower than the previous week. Domestic dry gas production now stands 8.7 percent above this time last year. The slight fall in this week’s production was offset somewhat by a 1.7 percent increase in Canadian imports averaging 5.6 Bcf per day. However, Canadian imports remain 5.5 percent below year-ago volumes. Supply gains remained muted in the liquefied natural gas (LNG) arena during the week where imports came in at 476 million cubic feet (MMcf) per day and remain 34.2 percent below year-ago levels.

Storage

Working natural gas in storage rose to 3,409 Bcf as of Friday, September 30, according to EIA’s WNGSR (see Storage Figure). Following a net injection of 97 Bcf from the previous week, stocks are now 78 Bcf below last year and 28 Bcf above the 5-year average. The injection was much larger than the 5-year average injection of 74 Bcf and last year’s injection of 84 Bcf.

This was the second week in a row of very large builds. After spending most of the summer at a deficit to the 5-year average, stocks have rebuilt very quickly over the last several weeks as the hot weather has become milder. With production at very high levels, stocks were able to rapidly gain ground in the absence of much power sector demand and before major heating demand begins.

Temperatures during the week ending Thursday, September 29, averaged 67.7 degrees, 3.7 degrees warmer than normal and 2.9 degrees warmer than last week (see Temperature Maps and Data). Regionally, temperatures were higher than normal everywhere except the Midwest. The Northeast was the warmest relative to normal with New England 11.6 degrees warmer than normal and the Middle Atlantic 8.9 degrees warmer. These two regions would typically be starting to consume heating fuels such as natural gas as the weather turns colder, but heating degree-days last week were down over 90 percent from normal in each region.

Other Market Trends

Natural Gas Rig Count Rises to 923. The natural gas rotary rig count rose by 11 to 923 as of September 30, according to data reported by Baker Hughes Incorporated. This is the highest value since December 22, 2010. The oil rig count, on the other hand, fell by 11 during the week but it remains at a historically high level of 1,060. Compared to the same time a year ago, the natural gas rig count has dropped 4 percent, while the oil rig count has risen by 54 percent. The increase in oil rigs is likely related to increases in oil prices year over year. Though natural gas rigs have fallen year over year (and declined substantially from record highs in 2008), production has continued to rise. This is likely a combination of increases in associated production from the oil rigs, as well as increases in production per rig. Vertical rigs (including both oil and natural gas) rose during the week, from 609 to 617, their highest level since 2009. Horizontal rigs (also including both oil and natural gas) fell by 5 to 1,035.

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.