Natural Gas

Overview:

(For the Week Ending Wednesday, June 11, 2014)

• Natural gas prices posted slight overall declines during the report week (Wednesday, June 4 — Wednesday, June 11) at most market locations. The Henry Hub spot price fell from $4.57/MMBtu last Wednesday to $4.50/MMBtu yesterday.
• At the New York Mercantile Exchange (Nymex) the price of the front-month (July 2014) contract fell from $4.640/MMBtu last Wednesday to $4.508/MMBtu yesterday. The price of the 12-month strip fell from $4.660/MMBtu last Wednesday to $4.556/MMBtu yesterday.
• Working natural gas in storage rose to 1,606 Bcf as of Friday, June 6, according to the U.S. Energy Information Administration (EIA) Weekly Natural Gas Storage Report (WNGSR). A net increase in storage of 107 Bcf for the week resulted in storage levels 31.2% below year-ago levels and 35.3% below the 5-year average.
• The Baker Hughes rotary rig count totaled 1,860 as of June 6, down 6 units from the previous week. The number of active gas-directed rigs fell by 6 to 320, while oil rigs remained flat at 1,536. The oil-directed rig count is currently 130 units greater than its year-ago level, while the gas rig count is 34 units less than last year's level.
• The Mont Belvieu natural gas plant liquids composite price fell 19 cents to $9.74/MMBtu for the week covering June 2 to June 6. The ethane spot price increased by 0.9%, while the spot prices of butane, natural gasoline, isobutane, and propane declined by 0.1%, 2.3%, 2.8%, and 3.0%, respectively.

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Prices/Demand/Supply:

Prices decline slightly at most locations. Outside of the Northeast, price movements during the report week were limited, with prices at most trading locations ending the week slightly below last Wednesday. The Henry Hub spot price declined from $4.57/MMBtu last Wednesday to $4.50/MMBtu yesterday. Heading into the weekend, the Henry Hub rose to $4.65/MMBtu, likely on forecasts of warm weather in the Southeast, and eventually dropped back at the end of the report week.

Wide swings occur on Algonquin. At the Algonquin Citygate, which serves Boston-area consumers, prices began the week at $5.26/MMBtu and fell to $3.33/MMBtu heading into the weekend before rising again to $4.80/MMBtu at the end of the report week. Algonquin announced on June 5 that after performing mandated inspections, it would need to further investigate its mainline from Stony Point, New York, to its Cromwell, Connecticut, compressor station. Flows will be restricted at three compressor stations. Algonquin began restricting interruptible and some firm service, and noted that it may issue an operational flow order to maintain balance on the system.

Northeast prices fall heading into the weekend. At Transcontinental (Transco) Pipeline's Zone 6 trading point for New York City delivery, prices began the week at $3.44/MMBtu before dropping to $3.13/MMBtu on Friday, on forecasts of mild temperatures. By the end of the report week, prices had risen to $3.28/MMBtu. Since the end of winter, Transco Zone 6 prices have traded at a strong discount to the Henry Hub. Since mid-May, prices at that location have traded more than $1/MMBtu below the Henry Hub on almost all trading days. Boston prices have also largely traded at a discount to the Henry Hub, but with less consistency than Transco.

Nymex declines this week. The price of the Nymex near-month contract dropped this week from $4.640/MMBtu last Wednesday to $4.508/MMBtu yesterday. Like spot prices, the near-month contract rose heading into the weekend on expectations of warm weather, but declined on Monday. The price of the 12-month strip (the 12 contracts between July 2014 and June 2015) fell from $4.660/MMBtu last Wednesday to $4.556 yesterday.

Supply and demand both decline this week. Dry production fell 0.4% this week, following an all-time high last week, but remains 4.2% greater than the same week last year, according to data from Bentek Energy. Imports from Canada declined 9.5% from last week, with a large decrease in the Midwest offsetting a slight increase in imports to the West. U.S. consumption fell 1.5%, driven by declines in the industrial and power sector. During this time of year, residential and commercial consumption minimally contributes to total consumption.

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Storage

Net storage increase is in triple digits for the fourth straight week. The net injection reported for the week ending June 6 was 107 Bcf, 19 Bcf larger than the 5-year average net injection of 88 Bcf and 10 Bcf larger than last year's net injection of 97 Bcf. Working gas inventories totaled 1,606 Bcf, 727 Bcf (31.2%) less than last year at this time, and 877 Bcf (35.3%) below the 5-year (2009-13) average.

Storage build is smaller than market expectations. Market expectations called for a build of 110 Bcf. When the EIA storage report was released at 10:30 a.m., the price for the July natural gas futures contract rose 11 cents to $4.65 /MMBtu on the Nymex. Prices rose an additional 4 cents in the hour following the release.

From the week ending on April 4 to the week ending on June 6, net storage injections have totaled 784 Bcf, versus 633 Bcf for the same 10 weeks in 2013, and 669 Bcf for these weeks between 2009 and 2013, on average. The average unit value of what storage holders put into storage from April 4 to June 6 was $4.60/MMBtu, 13% higher than the average value for the same 10 weeks last year of $4.08/MMBtu. The highest winter-month Nymex price (for next January) in trading for the week ending on June 6 averaged $4.75/MMBtu. This was 12 cents more than the current Nymex July contract price. A year ago, the difference was 25 cents/MMBtu.

There are currently 21 more weeks in the injection season, which traditionally occurs April 1 through October 31, although, in many years, injections continue into November. EIA forecasts that the end-of-October working natural gas inventory level will be 3,424 Bcf, which, as of June 6, would require an average injection of 87 Bcf per week through the end of October. EIA's forecast for the end-of-October inventory levels are below the 5-year (2009-13) average value of 3,837 Bcf. To reach the 5-year average by October 31, average weekly injections through the end of October would need to be 106 Bcf.

Two regions post larger-than-average builds. The East, West, and Producing regions had net injections of 65 Bcf (12 Bcf larger than its 5-year average injection), 13 Bcf (1 Bcf smaller than its 5-year average injection), and 29 Bcf (9 Bcf larger than its 5-year average injection), respectively. Storage levels for all three regions remain below their year-ago and 5-year average levels.

Temperatures during the storage report week were warmer than normal. Temperatures in the Lower 48 states averaged 70.4 degrees for the week, 3.0 degrees warmer than the 30-year normal temperature and 0.3 degree warmer than during the same period last year.

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See also:

• Natural Gas Analysis Reports
• Short-Term Energy Outlook