Natural Gas

Overview:

(For the Week Ending Wednesday, August 13, 2014)

• Natural gas spot prices remained relatively unchanged at most trading locations across the country. The Henry Hub decreased by 2 cents/MMBtu, moving from $3.89/MMBtu last Wednesday to $3.87/MMBtu yesterday.
• At the New York Mercantile Exchange (Nymex), the September contract decreased by 10 cents/MMBtu, beginning the report week at $3.933/MMBtu last Wednesday and settling at $3.831/MMBtu yesterday.
• Working natural gas in storage rose to 2,467 Bcf as of Friday, August 8, according to the U.S. Energy Information Administration's (EIA) Weekly Natural Gas Storage Report (WNGSR). A net increase in storage of 78 Bcf for the week resulted in storage levels 17.7% below year-ago levels and 18.9% below the five-year average for this week.
• Active drilling rigs totaled 1,908 as of August 8, up by 19 rigs from the previous week, according to data from Baker Hughes Inc. The natural gas rig count increased by 3 rigs to 316, and the number of oil-directed rigs increased by 15 to 1,588. Natural gas rigs are 70 units less than last year's level, and oil rigs are 203 units greater than last year's level.
• The Mont Belvieu natural gas plant liquids composite price decreased for the sixth consecutive week, averaging $9.38/MMBtu for the week covering August 4 through August 8, and is 1% lower than the previous week's average. The spot prices of natural gasoline, butane, and isobutane decreased by 3.6%, 0.9%, and 2.0%, respectively. The spot prices of ethane and propane increased by 0.4% and 0.8%, respectively.

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Prices/Demand/Supply:

Natural gas spot prices decrease slightly on mild weather. At most trading locations across the country, spot prices declined slightly over the past week amid mild temperatures and lack of cooling demand. Prices in the West and Midwest declined by about $0.05/MMBtu, with prices ending the week 1%-2% lower than on the previous Wednesday. The regional average decline for prices at Northeastern trading locations was $0.08/MMBtu, with price declines ranging from $0.03/MMBtu to $0.22/MMBtu. One of the largest changes occurred at the Algonquin Citygate, with delivery into Boston. Prices at that location started the report week at $2.85/MMBtu, and fell through Friday to $2.63/MMBtu. The price increased 36 cents/MMBtu on Monday, but dropped 31 cents/MMBtu in Tuesday's trading, to close the report week at $2.69/MMBtu. At the Transco Zone 6 New York location, prices followed a similar pattern over the week, with prices increasing in Monday's trading and falling the following day. The price at Transco Zone 6 ended the report week at $2.51/MMBtu, a decrease of 16 cents/MMBtu for the week.

Nymex prices decline. At the New York Mercantile Exchange (Nymex), the September 2014 contract declined a dime, opening the report week at $3.933/MMBtu last Wednesday and settling yesterday at $3.831/MMBtu. The 12-month strip (the 12 contracts between September 2014 and August 2015) also declined, falling from $3.994/MMBtu last Wednesday to 3.913/MMBtu yesterday, a decrease of 2.0%.

Consumption falls on mild weather and lack of cooling demand. U.S. consumption decreased by 0.2%, mainly due to a decline in power-sector gas demand as temperatures remained mild in most areas of the country. The biggest decline in power burn was in the Midwest, at 27.6%, followed by the Pacific Northwest (13.6%) and Southwest (12.0%). Overall power sector consumption was 6.1% below last year's level. Exports to Mexico remained strong and averaged 2.3 Bcf/d, 16.5% higher than a year-ago levels.

Supply increases moderately during the report week. Dry natural gas production increased by 0.6% from the previous week, and remained close to the record high of 69.3 Bcf/d on July 30. Overall U.S. dry production is 6.4% greater than its year-ago level. Imports from Canada decreased by 3.9% to 4.95 Bcf/d, while liquefied natural gas sendout remained at minimal levels.

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Storage

Net injections into storage higher than average. The net injection reported for the week ending August 8 was 78 Bcf, 33 Bcf larger than the five-year average net injection of 45 Bcf and 8 Bcf larger than last year's net injection of 70 Bcf. Working gas inventories totaled 2,467 Bcf, 530 Bcf (17.7%) less than last year at this time and 575 Bcf (18.9%) below the five-year (2009-13) average.

Storage build is lower than market expectations. Market expectations called for a build of 83 Bcf. When the EIA storage report was released at 10:30 a.m., the price for the September natural gas futures contract increased 13 cents to $3.91/MMBtu on the Nymex.

From the week ending on April 4 through the week ending on August 8, net storage injections have totaled 1,645 Bcf versus 1,296 Bcf for the same 19 weeks in 2013, and 1,230 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 August 8 was $4.43/MMBtu, 15% higher than the average value for the same 18 weeks last year of $3.85/MMBtu. The highest winter-month Nymex price (for the January 2015 contract) in trading for the week ending on August 8 averaged $4.12/MMBtu. This is 25 cents more than the current front month Nymex contract price for that week. A year ago, the difference was 42 cents/MMBtu, providing a bit more financial incentive to buy and store gas in the summer for sale in the winter.

There are currently 12 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 3,463 Bcf, which, as of August 8, would require an average injection of 83 Bcf per week through the end of October. EIA's forecast for the end-of-October inventory levels are below the five-year (2009-13) average peak storage value of 3,851 Bcf. To reach the five-year average peak value, average weekly injections through the end of October would need to be 114 Bcf.

All three regions post larger-than-average builds. The East, West, and Producing regions had net injections of 58 Bcf (14 Bcf larger than its five-year average), 11 Bcf (7 Bcf larger than its five-year average), and 9 Bcf (13 Bcf larger than its five-year average), respectively. Storage levels for all three regions remain below their year-ago and 5-year average levels.

Cooler temperatures during the storage report week support larger-than-average build. Temperatures in the Lower 48 states averaged 74.1 degrees for the week, 1.0 degree cooler than the 30-year normal temperature and 0.1 degree warmer than during the same period last year. There were 65 population-weighted cooling degree days during the storage report week, eight lower than the 30-year normal and one lower than the same period last year.

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See also:

• Natural Gas Analysis Reports
• Short-Term Energy Outlook