for week ending July 19, 2006 | Release date: July 20, 2006 | Previous weeks
Overview: Friday,
July 20 (next release 2:00 p.m. on July 27, 2006)
Since
Wednesday, July 12, natural gas spot prices increased at most market locations
in the Lower 48 States.On Wednesday, July
19, prices at the Henry Hub averaged $5.89 per MMBtu, increasing 24 cents per
MMBtu, or about 4 percent, since the previous Wednesday. The NYMEX futures contract for August delivery
at the Henry Hub settled at $5.862 per MMBtu, on Wednesday, July 19, climbing 8
cents per MMBtu, or about 1 percent, from the settlement price of $5.782 last
Wednesday, July 12. Natural gas in
storage was 2,763 Bcf as of July14, which is almost 26 percent above the 5-year
average. The spot price for West Texas
Intermediate (WTI) crude oil decreased $2.20 per barrel, or about 3 percent, on
the week (Wednesday-Wednesday) to $72.79 per barrel or $12.55 per MMBtu.
Spot prices climbed since last Wednesday, July 12, with
increases ranging between 1 and 61 cents per MMBtu at most market locations. Increased cooling load resulting from the hot
temperatures that prevailed in most of the Lower 48 States likely contributed
to the price hikes. As a heat wave
enveloped most of the Lower 48 States late last week, prices rallied at most
market locations through Monday, July 17, but declined somewhat thereafter in
trading during the next 2 days. The
largest price increases since last Wednesday, July 12, occurred principally in
the southernmost markets, including Florida, Alabama, Louisiana,
Arizona/Nevada, and the East and West Texas regions. By far the largest price increases occurred
in Florida, where prices spiked $1.15 per MMBtu, or about 18 percent at the Florida
Gas Transmission (FGT) citygate. Meanwhile,
prices rose about 26 to 39 cents per MMBtu, or about 4 to 6 percent on average
in Alabama, Louisiana, Arizona/Nevada, and the East and West Texas regions. Elsewhere,
price hikes were widespread but less pronounced, rising 6 to 18 cents per MMBtu
or about 1 to 4 percent on the week. Despite
the increases, prices are below last year's levels, with differences mostly ranging
between $0.85 and $2.11 per MMBtu, or about 12 to 28 percent. Prices at the Henry Hub are about $1.81 per MMBtu
or about 24 percent below last year's level. This year's lower price level reflects an improved natural gas supply
situation relative to last year owing in part to the absence of hurricane
activity in the Gulf of Mexico this year. In contrast, by this time last year five tropical storms, including three
hurricanes, had threatened production in the Gulf of Mexico. Another factor contributing to the lower
price level this year relative to last year is the level of working gas in
storage, which remains significantly above the 5-year average and last year's
level at this time. This likely is mitigating
injection demand for natural gas.
At the NYMEX, prices for the
futures contracts for the next 12 months were mixedwith the 12-month futures strip (August 2006
through July 2007) posting a slight decline of about 1 cent per MMBtu since
last Wednesday, July12. The futures
contract for August delivery at the Henry Hub settled yesterday (July 19) at $5.862
per MMBtu, increasing about 1 percent since the previous Wednesday, while the
September and October futures prices declined about 1 and 11 cents per MMBtu,
respectively. Prices for the futures
contracts for delivery during the heating season months (November 2006 through
March 2007) increased by less than 1 percent since last Wednesday. These contrasting price movements on the
futures markets likely reflect the high level of working gas in storage at this
time, which temporarily may allow storage operators to defer their injections
into storage as the 3-month strip (August 2006 through October 2006) is trading
at a 15-cent premium to the Henry Hub spot price. However, because of storage capacity
limitations and uncertainty about high temperatures or potential hurricane-related
production disruptions later this summer, the storage overhang may not persist
through the 2006-2007 heating season. This is reflected in the futures contract prices for the upcoming
heating season months (November 2006 through March 2007), which are about $3.56
per MMBtu higher than the Henry Hub spot price on average. Overall, the 12-month futures strip (August 2006
through July 2007) traded at a premium of $2.27 per MMBtu relative to the Henry
Hub spot price, averaging $8.16 per MMBtu as of Wednesday, July 19. Differentials of this magnitude between the
spot price and the futures contract prices provide suppliers strong economic
incentives to inject gas into storage.
Recent Natural Gas Market Data
Estimated Average Wellhead Prices |
||||||
|
Jan-06 |
Feb-06 |
Mar-06 |
Apr-06 |
May-06 |
June-06 |
8.66 |
7.28 |
6.52 |
6.59 |
6.19 |
5.80 |
|
Price
($ per MMBtu) |
8.43 |
7.09 |
6.35 |
6.42 |
6.03 |
5.65 |
Note:
Prices were converted from $ per Mcf to $ per MMBtu using an average heat
content of 1,027 Btu per cubic foot as published in Table A4 of the Annual
Energy Review 2002. |
||||||
Source:Energy Information Administration, Office
of Oil and Gas. |
Working
gas in storage totaled 2,763 Bcf as of Friday, July
14, which is about 26 percent above the 5-year average inventory level for the
report week, according to EIA's Weekly Natural Gas Storage Report (See Storage Figure).
During the week, the implied net injection of 59 Bcf
was 25 percent less than the 5-year average of 79 Bcf
and equal to last year's injection of 59 Bcf. As of
July 14, stocks exceeded last year's level by 427 Bcf and
the 5-year average by 562 Bcf. With working gas levels well above
historical levels for this time of year, lingering uncertainty about the
sustainability of the current price level may have contributed to the
below-average injection. During the report week, temperatures in the Lower 48
States were warmer than normal.However,
cooling degree days were below normal in the East South Central and South
Atlantic Census Divisions. Overall,
cooling degree days (CDD) were about 6 percent above normal on average in the
Lower 48 States. (See Temperature
Maps)
Other Market Trends:
DOE Selects Research Projects Targeting
Tight Gas Resources: The National Energy Technology Laboratory
within the Department of Energy's (DOE) Office of Fossil Energy announced two
research projects on Monday, July 17, that were chosen under a DOE funding
opportunity. The two projects target
tight gas, which is an unconventional form of natural gas found in low-permeability
gas formations. According to the Energy
Information Administration (EIA), unconventional production of natural gas,
including tight gas, gas shales, and coalbed methane, is the largest source of
U.S. natural gas supply and is expected to grow as many of the conventional
natural gas resources have been discovered.Unconventional gas production in the Lower 48 States was 7.5 trillion
cubic feet in 2004, which was about 40 percent of total U.S. natural gas
output. Production from Gulf deepwater reservoirs is also increasing. EIA expects Lower 48 unconventional
production to increase to 9.5 Tcf in 2030.Tight gas is the largest of the three unconventional gas resources, but
challenges occur in producing this resource because of the impermeable nature
of the reservoir rocks, small reservoir compartment, abnormal pressures,
difficulty in predicting natural fractures that help gas flow rates, and the
need to avoid reservoirs that produce large volumes of water. The two selected projects focus on tight gas
recovery technologies. The first
project, proposed by the University of Texas at Austin, will design and
implement enhancements to the fracturing process. The second project, proposed by the
Massachusetts Institute of Technology, will develop a method to better locate
and characterize naturally fractured sweet spots and induced fractures in tight
gas formations. For each project, DOE is
providing close to or over half of the total cost.
MMS Announces Deepwater Discoveries: The
Department of the Interior's Minerals Management Service (MMS) announced that
companies have made seven new discoveries of deepwater oil and gas in the Gulf
of Mexico since January 2006. Deepwater
discoveries refer to those located in water depths greater than 1,000 feet. This year's discoveries, to date, range from
the Redrock prospect in Mississippi Canyon 204, which is located in water 3,334
feet deep, to the Gotcha prospect in Alaminos Canyon 856, which is located in
water 7,600 feet deep. Production from
Gulf of Mexico deepwater reservoirs is an increasingly important source of
natural gas. Although production from
these areas has declined slightly in the past 2 years, the percentage of total
production from deepwater areas has steadily increased since 1985.In 2005, natural gas production from deepwater
areas was about 1.2 trillion cubic feet, which represented about 38 percent of
total natural gas production in the Federal Gulf of Mexico that year.
Natural Gas
Transportation Update:
ANR
Pipeline Company announced that it
has shut in the Mooreland Plant Outlet meter station located in Oklahoma
because of an unforeseen pipeline repair and replacement at its Mooreland compressor
station. ANR will not be accepting any
volumes or nominations at this location until further notice. In addition to the
meter station shut-in, ANR also restricted capacity of the Patterson-to-Eunice
delivery line to 650,000 decatherms (Dth) per day, citing an unforeseen engine
outage at the Patterson compressor station. The outage occurred for the gas day
Monday, July 17, and resulted in curtailment of the firm secondary and
interruptible transportation service.
Florida
Gas Transmission Company (FGT) has issued
an overage alert day for the past 5 days, ranging between 15 and 25 percent
each day. The company also announced that scheduled delivery volumes will be
reduced to 110,000 MMBtu per day at the Transco Citronelle/FGT interconnect in
Mobile County, Alabama, because of pressure reductions. Normal capacity at the
interconnection is 300,000 MMBtu.
Southern Natural Gas
Company announced that the White Castle compressor station was shut in on
Sunday, July 16, because of unscheduled repairs. As of July 18, repairs had
progressed sufficiently so that Southern was able to raise the capacity on the
west leg upstream of the Franklinton compressor station in South Louisiana. On
Tuesday (July 18), Southern raised total available capacity from 550,000 Dth to
625,000 Dth, followed by an increase to 655,000 Dth on Wednesday (July 19).
Northern Natural Gas issued
a notice on July 19 stating that its positive interruptible deferred delivery (IDD)
storage inventory allocation will be extended from July 31, 2006, to October
31, 2006 (inventory allocation period). As
is the case with other storage operators, Northern continues to experience high
storage inventories. While IDD shippers have significantly decreased their
inventory balances this month, Northern reported that the company will continue
to have limited capacity for IDD volumes for the remainder of the refill
season. Shippers whose IDD account
balance at the end of the April 21 gas day was negative must have a balance no
greater than zero on October 31, while those with positive balances at the end
of the April 21 gas day must have a balance no greater than that on October 31.