Natural Gas

Overview:

(For the Week Ending Wednesday, July 10, 2013)

• Natural gas spot prices increased over the report week in most areas as warm weather led to increased cooling demand. The Henry Hub spot price rose from $3.54 per million British thermal unit (MMBtu) last Wednesday, July 3, to $3.69 yesterday.
• At the New York Mercantile Exchange (Nymex) the front month (August 2013) contract fell a penny from $3.690 per MMBtu last Wednesday to $3.680 yesterday.
• Working natural gas in storage increased to 2,687 Bcf as of Friday, July 5, according to the U.S. Energy Information Administration's (EIA) Weekly Natural Gas Storage Report (WNGSR). A net storage injection of 82 Bcf for the week resulted in storage levels 14.2% below year-ago levels, and 0.8% below the 5-year average.
• Natural gas rotary rigs increased by 2 to 355 last week, according to data released by Baker Hughes Incorporated. The oil rig count increased by 5 to 1,395 active units.
• The weekly average natural gas plant liquids composite price this week (covering July 1-5) increased by 3% to $8.92 per MMBtu from the previous week. Mont Belvieu spot prices for propane and natural gasoline both increased by 3%. Butane and isobutane prices increased by 6% and 5%, respectively. The ethane price was flat.

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Prices/Demand/Supply:

Natural gas spot prices generally rose over the week, partially reversing losses from the past two weeks. Henry Hub spot prices ended the reporting week at $3.69, up 15 cents from $3.54 on July 3. For the first few days of July, Henry Hub prices remained in the $3.50 per MMBtu range, at their lowest level since March. Big price increases occurred in the Northeast on Friday, July 5, likely on a weekend forecast of hot weather. The spot price at the Algonquin Citygate rose to $5.73 per MMBtu on Friday, July 5, up from $4.50 per MMBtu on July 3 (markets were closed on July 4). At Transcontinental Pipeline's Zone 6 trading point for delivery into New York City, prices rose moderately Friday, but continued to increase through most of the report week.

In the Marcellus shale, expected pipeline outages led to large price declines before the July 4 holiday. On July 3, prices dropped from $2.44 per MMBtu to $1.08 per MMBtu at Tennessee Pipeline's Zone 4 Marcellus trading point. Dominion Transmission had announced maintenance would begin Monday and limit flows on its pipeline, which interconnects with many other systems in the region. The maintenance would likely result in stranded gas. On Friday, however, Dominion announced that it would postpone the maintenance to July 15, and as a result, prices in the area increased. Prices at Tennessee's Zone 4 point had risen back into the $2 range by Monday.

At the Nymex, the price of the August 2013 contract posted a slight decline. Prices fell from $3.690 per MMBtu last Wednesday to $3.680 yesterday. The August contract has gained 9.8 cents thus far in its tenure as the prompt-month contract; on June 27, its first day trading as prompt month, the contract settled at $3.582 per MMBtu. The 12-month strip posted almost zero net change during the report week, decreasing from $3.877 per MMBtu on July 3 to $3.874 yesterday.

Total consumption declined slightly during the report week, according to Bentek Energy Services estimates. Declines in the residential, commercial, and industrial sectors were offset by a 0.2% increase in consumption of natural gas for electric power generation, which is the largest consuming sector at this time of year. Regionally, consumption of natural gas for power generation (or, power burn) was mixed. Power burn fell 7.4% in the Southeast, but rose 21.2% in the Northeast in response to hot weather in the middle of the week. These two regions are the largest users of natural gas for power generation. In Texas, the third major consuming region, power burn fell 3.1%. The large increases in the Northeast helped to offset declines in other regions for the overall increase in electric power consumption.

Supply increased slightly during the week. Total supply increased 0.9%, as domestic production, imports of natural gas from Canada, and the flow into U.S. pipelines of imported liquefied natural gas (LNG) increased. LNG sendout rose from the previous week, with the Everett Terminal near Boston making up almost all of the sendout volumes. However, despite increases, total LNG sendout has been at near-minimal levels of less than 0.5 Bcf/d for most of 2013. Dry gas production rose 0.5% this week, and remains 2.1% above year-ago levels.

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Storage

Working natural gas in storage increased to 2,687 Bcf as of Friday, July 5, according to EIA's WNGSR. The 82-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 74 Bcf and 34 Bcf, respectively. Despite the large build, current inventories remain 443 Bcf (14.2%) less than last year at this time and 22 Bcf (0.8%) below the 5-year average of 2,709 Bcf.

All three storage regions posted increases this week. Inventories in the East, West, and Producing regions increased by 53 Bcf (the 5-year average net injection is 50 Bcf), 2 Bcf (the 5-year average net injection is 11 Bcf), and 27 Bcf (the 5-year average net injection is 13 Bcf), respectively. In the Producing region, working natural gas inventories increased 9 Bcf (3.4%) in salt cavern facilities and increased 18 Bcf (2.5%) in nonsalt cavern facilities.

The net injection was in line with the market expectations, which, on average, were reported to be 81 Bcf. Natural gas prompt-month Nymex futures prices fell over $0.08 per MMBtu to just below $3.61 per MMBtu immediately following WNGSR's release. In the hour following the release, prices remained around this level.

Storage report week sees warmer than normal temperatures. Temperatures in the Lower 48 states were 1.7 degrees warmer than the 30-year normal temperature and 2.1 degrees cooler than the same period last year, and averaged 75.7 degrees for the week, compared to 77.9 degrees last year and the 30-year normal of 74.0 degrees.

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See also:

• Natural Gas Analysis Reports
• Short-Term Energy Outlook