Natural Gas

Overview:

(For the Week Ending Wednesday, June 26, 2013)

• Natural gas hub prices decreased in most areas during the report week (Wednesday, June 19, to Wednesday, June 26). The Henry Hub spot price closed yesterday at $3.72 per million British thermal units (MMBtu), down 21.0 cents from $3.93 the previous week.
• At the New York Mercantile Exchange (Nymex), futures prices also decreased over the week. The near-month contract (July 2013) expired yesterday at $3.707, down 25.6 cents from $3.963 per MMBtu a week earlier. The August contract price, which today becomes the prompt month price, settled yesterday at $3.737.
• Working natural gas in storage increased to 2,533 Bcf as of Friday, June 21, according to the U.S. Energy Information Administration's (EIA) Weekly Natural Gas Storage Report (WNGSR). A net storage injection of 95 Bcf for the week resulted in storage levels 17.1% below year-ago levels, and 1.2% below the 5-year average.
• The Baker Hughes natural gas rotary rig count totaled 349 active units as of Friday, June 21, a decline of 4 rigs from the previous week. The oil rig count decreased by 8 to 1,405. Bentek Energy reported dry gas production this week averaged 64.7 Bcf/d, up nearly 2% from a year ago.
• The weekly average natural gas plant liquids composite price decreased this week (covering June 17 through 21) by 4% to $8.55 per MMBtu from the previous week. Propane, butane, and isobutane spot prices decreased by around 6%. The natural gasoline spot price was down slightly for the week, while the ethane spot price remained unchanged.

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Prices/Demand/Supply:

Natural gas prices fell over the report week at most locations with the exception of price increases in the Northeast. The Henry Hub spot price decreased from $3.93 per MMBtu last Wednesday to $3.72 per MMBtu yesterday. With warmer-than-normal temperatures arriving on Monday, natural gas prices in the Northeast increased between 10% and 20%. Since Monday, the temperature in Boston has been around 10 degrees Fahrenheit above normal. The price at the Algonquin Citygate, which serves Boston, rose $1.05 to close at $5.48 per MMBtu on Monday. Similarly, the price at Transcontinental Pipeline's Zone 6 trading point for delivery into New York City rose $0.36, to $4.27 per MMBtu during the same period.

At the Nymex, the futures price decreased during the week. The price of the July 2013 contract, which expired yesterday, fell from $3.963 per MMBtu last Wednesday to $3.707 yesterday. Prices during bidweek trading, which began on Monday, remained relatively flat. The 12-month strip (the average of the 12 contracts between July 2013 and June 2014) decreased from $4.097 per MMBtu last Wednesday to $3.899 per MMBtu yesterday.

Total consumption increased week-on-week with large gains in power demand. According to Bentek Energy Services estimates, total natural gas consumption in the United States increased by 3.0%, driven by an 11.1% increase in the power sector. Warmer temperatures across most of the country, and the corresponding increase in air conditioning load, likely contributed to the demand increases. Natural gas consumed in the power sector increased across most of the country. However, gains were particularly strong in the Northeast and Midwest where week-over-week consumption increased 35.5% and 78.3%, respectively, as temperatures increased by around 20 degrees Fahrenheit from the previous week. Increases in natural gas consumed for electric generation offset the decreases of natural gas used in the industrial, residential, and commercial sectors.

Total supply increased 1.3% during the week due to higher natural gas production and imports. According to Bentek, dry natural gas production and imports increased by 0.5% and 9.3%, respectively, during the week. Dry natural gas production this week was 2.0% higher than a year ago.

Butane and isobutane spot prices at Mont Belvieu, Texas, were the lowest since July 31, 2009, and July 22, 2009 respectively, with butane falling to $10.46 per MMBtu on Monday, June 17, and isobutane falling to $11.86 per MMBtu on Friday, June 21. Butane demand faces seasonality as less is blended into gasoline during summer months. Additionally, Bentek estimates that production of butane is up by about 10% compared to year-to-date production in 2012, and exports of liquid petroleum gases, including butane, are facing structural constraints. Two new natural gas liquids pipelines were brought on line, which may also be increasing supply to Mont Belvieu. The Sand Hills Pipeline is capable of transporting 200,000 barrels per day (bbl/d) from the Permian Basin to the Gulf Coast, and the Southern Hills Pipeline is now able to transport 150,000 bbl/d from the Midcontinent to the Gulf Coast.

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Storage

Working natural gas in storage increased to 2,533 Bcf as of Friday, June 21, according to EIA's WNGSR. The 95 Bcf gain in storage levels was higher than both the 5-year average and year-ago stock changes for the week, which had net injections of 79 Bcf and 58 Bcf, respectively. Despite the large build, current inventories remain 522 Bcf (17.1%) less than last year at this time and 31 Bcf (1.2%) below the 5-year average of 2,564 Bcf.

All three storage regions posted increases higher than their 5-year averages this week. In particular, the East and Producing regions stocks increased by 58 Bcf (the 5-year average net injection is 53 Bcf) and 24 Bcf (the 5-year average net injection is 14 Bcf), respectively. In the Producing region, working natural gas inventories increased 2 Bcf (0.8%) in salt cavern facilities and increased 21 Bcf (3.1%) in nonsalt cavern facilities. The West region's net injection this week was 13 Bcf, 1 Bcf higher than the 5-year average net injection.

The net injection was larger than the market expectations, which, on average, were reported to be 89 Bcf. Natural gas near-month Nymex futures prices fell over $0.10 per MMBtu to just over $3.60 per MMBtu around the time of WNGSR's release. In the hour following the release, prices remained around this level.

Seasonal temperatures during the storage report week supported this week's net injection. Temperatures in the Lower 48 states were 0.3 degrees warmer than the 30-year normal temperature and 0.6 degrees cooler than the same period last year, and averaged 71.4 degrees for the week, compared to 72.0 degrees last year and the 30-year normal of 71.1 degrees.

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See also:

• Natural Gas Analysis Reports
• Short-Term Energy Outlook