Natural Gas

• The previous report week's increasing prices gave way to relatively consistent declines across a large part of the country over this report week. The Henry Hub spot price showed a slight increase over the weekend, but closed down 26 cents for the week to $3.39 per million British thermal units (MMBtu) on November 2.
  
• At the New York Mercantile Exchange (NYMEX), the higher valued December 2011 natural gas contract moved into position as the near-month contract and declined by 2.6 cents per MMBtu to close the week at $3.749 per MMBtu.
  
• Working natural gas in storage rose last week to 3794 billion cubic feet (Bcf) as of Friday, October 28, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 78 Bcf, leaving storage volumes positioned 201 Bcf above their 5 year average.
  
• The natural gas rotary rig count, as reported October 28 by Baker Hughes Incorporated, increased by 7 to 934 active units. Oil-directed rigs, on the other hand, fell by 1 to 1,078 units.

Prices

Most trading locations across the country saw declining prices over the week, with the Henry Hub price falling from $3.65 per MMBtu last Wednesday to $3.39 per MMBtu yesterday. Slight upticks on Friday and Monday gave way to larger declines for the rest of the report week. The Northeast, where an early season snowfall moved in and propelled prices upward going into and over the weekend, was a departure from the overall decline. A price increase of 39 cents per MMBtu was posted at the Algonquin citygate in Massachusetts last Friday, and it increased another 12 cents over the weekend to reach a high of $5.00 per million Btu on Monday. As prices at other locations continued to fall throughout the week, prices in the Northeast did not ease off until Tuesday. By yesterday, the Algonquin citygate price had retreated to $4.19 per MMBtu.

At the NYMEX, the December 2011 contract declined 2.6 cents from $3.775 per MMBtu last Wednesday to $3.749 per MMBtu yesterday. The November 2011 contract expired at $3.524 per MMBtu on October 26, having lost 22 cents over its tenure as the near-month contract.

While most trading locations, including the Northeast, continued to decline towards the end of the report week, price increases at several Rocky Mountain and Midcontinent pricing points yesterday made them the exception to the rule. These pricing points were likely responding to a large weather system heading south out of Canada. The most notable increase was a 43 cent spike at the Northwest Sumas pricing point. This was its first price spike of the season and came particularly early. The higher prices in this part of the country caused strong increases in Ruby pipeline flows, which reached a record flow level of 1.0 Bcf per day, according to BENTEK Energy Services, LLC (BENTEK). Increased flows to the West on Ruby coincided with a drop in the Rockies Express Pipeline (REX) outflows to the East, which registered flows below 1.1 Bcf per day. Natural gas flows on REX fell to their lowest levels since early February, according to BENTEK.

Likely due to colder temperatures in parts of the country, consumption increased over the report week. According to estimates from BENTEK, domestic gas consumption increased by 12.6 percent over last week. Most of the increase was attributed to increases in demand in the residential/commercial sector, which posted an increase of over 30 percent. Power burn was down slightly over last week, and the industrial sector posted a gain of 2.6 percent. Exports to Mexico increased slightly over last week and averaged just over 1200 million cubic feet (MMcf) per day.

In spite of the increases in demand, overall supply was up only slightly. According to BENTEK estimates, the week’s overall average total gas supply posted a 0.2 percent increase from last week’s level. Domestic weekly dry gas production increased by 0.3 percent over the previous week, putting domestic dry gas production 7.8 percent above this time last year. The slight increase in domestic production was augmented by a 1.6 percent increase in Canadian imports. Canadian imports were 2.3 percent above year-ago volumes for the same week.

Storage

Working natural gas in storage rose to 3,794 as of Friday, October 28, according to EIA’s WNGSR (see Storage Figure). This represents a 78 Bcf implied net injection. Inventories are now 17 Bcf below their year-ago levels and 201 Bcf above the 5-year (2006-2010) average. The East region injected 32 Bcf; the West, 7 Bcf; and the Producing region, 39 Bcf. The Producing region is the only one of the three regions above its year-ago levels, but all three regions remain above their 5-year average levels.

This week’s injection is more than twice as large as the five-year average injection of 35 Bcf. During the same week last year, storage inventories rose by 67 Bcf. The end of October marks the traditional end of the injection season and the beginning of the winter heating season, though often, relatively small injections continue into November. In fact, for the next two upcoming storage injection report weeks, the 5-year average is a positive number, representing a net injection.

Average temperatures in the United States for the week ending October 27 were 1.1 degrees warmer than the 30-year normal, but 3.7 degrees cooler than last year’s levels (see Temperature Maps and Data). Temperatures were a few degrees warmer than normal in most Census divisions, with the exception of the South Atlantic and the East South Central, where temperatures were 1.6 and 1.7 degrees cooler than normal, respectively.

Other Market Trends

Tennessee Pipeline Line 300 Goes Into Service. Tennessee Gas Pipeline, a subsidiary of El Paso Corporation, placed into service its Line 300 expansion project, consisting of seven looping segments in Pennsylvania and New Jersey totaling about 127 miles added onto Tennessee’s existing system. In addition, 5500 horsepower was added to the system via two new compressor stations and upgrades at seven existing stations. The project is intended to transport natural gas produced in the growing Marcellus Shale region, and it is one of many projects planned for the area to accommodate further expected increases in production. The project increases capacity by 350 MMBtu per day. As soon as the pipeline went into service, prices rose at Tennessee’s Zone 4 Line 300 pricing point, where abundance of supplies and lack of takeaway capacity had led to depressed prices. Prices at the Line 300 station rose to $3.40 per MMBtu the day it went into service, from levels in the $1—$2 per MMBtu range (falling to just 97 cents per MMBtu on October 31). The pipeline goes through Northeast Pennsylvania, through areas of robust production, including Bradford and Susquehanna Counties.

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.