Natural Gas

Overview: Thursday, August 17 (next release 2:00 p.m. on August 24, 2006)

Since Wednesday, August 9, natural gas spot prices decreased at most market locations in the Lower 48 States. On Wednesday, August 16, prices at the Henry Hub averaged $7.02 per MMBtu, decreasing 57 cents per MMBtu, or about 7.5 percent, since the previous Wednesday. The NYMEX futures contract for September delivery at the Henry Hub settled at $6.766 per MMBtu, on Wednesday, August 16, falling about 89 cents per MMBtu, or 11.6 percent, from the settlement price of $7.651 last Wednesday, August 9. Natural gas in storage was 2,800 Bcf as of August 11, which is about 14 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil decreased $4.46 per barrel, or about 6 percent, on the week (Wednesday-Wednesday) to $71.64 per barrel or $12.35 per MMBtu.

Prices:

Spot prices fell since last Wednesday, August 9, with decreases ranging between 30 and 84 cents per MMBtu at most market locations. Decreased cooling load resulting from moderating temperatures and falling crude oil prices likely contributed to the price declines. Prices rallied through the middle of last week at most market locations, peaking on Thursday, August 10, but declined significantly thereafter with the bulk of the decreases occurring in trading Friday, August 11, and Monday, August 14. The largest price decreases since last Wednesday, August 9, occurred principally east of the Rocky Mountains, where prices fell more than 40 cents per MMBtu at most market locations. Meanwhile, prices west of the Rocky Mountains region fell between 30 and 45 cents per MMBtu at most market locations. Since August 1, when natural gas spot prices peaked this summer at most market locations, prices have fallen about $1 to $2 per MMBtu, or about 13 to 25 percent. Prices are also down relative to last year's level at this time, with prices at the Henry Hub about $2.67 per MMBtu or about 28 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 fell across the board with the 12-month futures strip (September 2006 through August 2007) posting a decline of about 47 cents per MMBtu, or about 5 percent, since last Wednesday, August 9. Prices for the futures contracts for delivery at the Henry Hub in September and October decreased, falling about 89 and 92 cents per MMBtu, respectively, since the previous Wednesday.Prices for the futures contracts for delivery during the heating season months (November 2006 through March 2007) decreased by about 4 percent since last Wednesday, August 9.Averaging $10.485 per MMBtu, the futures contract prices for delivery during the upcoming heating season traded at a premium of about $3.47 per MMBtu to the Henry Hub spot price. Overall, the 12-month futures strip (September 2006 through August 2007) traded at a premium of $2.02 per MMBtu relative to the Henry Hub spot price, averaging $9.04 per MMBtu as of Wednesday, August 16. 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

Storage:

Working gas in storage totaled 2,800 Bcf as of Friday, August 11, which is about 14 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 37 Bcf was 40 percent less than the 5-year average of 62 Bcf and 27 percent below last year's injection of 51 Bcf. As of August 11, stocks exceeded last year's level by 292 Bcf and the 5-year average by 349 Bcf. Since May 12, when the difference between working gas stocks and the 5-year average peaked at 722 Bcf, this difference has declined each week with 213 Bcf of the total decline of 373 in this difference occurring during the last 4 weeks. During the report week, temperatures in the Lower 48 States were warmer than normal with cooling degree days (CDD) exceeding normal levels in each of the nine Census Divisions of the Lower 48 States.CDDs were 30 percent or more above normal in the West North Central and East South Central Census Divisions. CDDs in all other Census Divisions except New England and the Pacific were 14 percent or more above normal for this time of year. Overall, cooling degree days were. about 17 percent above normal on average in the Lower 48 States. (See Temperature Maps)

Other Market Trends:

Office of Fossil Energy and EIA Seek Comment on Import/Export Program: The Department of Energy's Office of Fossil Energy (FE) and the EIA are soliciting public comments on a proposed change to FE's data collection program regarding imports and exports of natural gas, including liquefied natural gas. According to a Federal Register notice released on August 10, FE is proposing to collect information on imports and exports only on a monthly basis. Currently, FE collects the information on a monthly and quarterly basis. The proposed change still would allow FE to collect all of the current detailed information, including country of origin, destination, international point of entry/exit, pricing, transporter, purchaser, market served, and contract term on a monthly basis. The notice includes a request for input on the usefulness of the information, what enhancements could be made, details on the reporting burden and the costs of providing the information. Comments on the proposed change should be sent to Yvonne Caudillo at yvonne.caudillo@hq.doe.gov or by fax to (202) 586-6050.  

MMS Holds Lease Sale for Western Gulf of Mexico Tracts: The Western Gulf of Mexico Lease Sale 200 conducted by the Minerals Management Service (MMS) on August 16 garnered $340.9 million in high bids from 62 companies for oil and natural gas leases in the Federal waters of the Gulf of Mexico. The total of all bids was $462.7 million, a 38 percent increase over last year's Western Gulf Sale.The agency received 541 bids on 381 tracts. Sale 200 is the leading Western Sale in terms of number of bids submitted in the past 9 years, and the highest in 8 years for the amount of money bid. In this sale, 3,865 blocks comprising approximately 20.87 million acres offshore Texas and the deeper waters offshore Louisiana were offered.  Interest in deepwater oil and gas production continues to grow, with 67 percent of all tracts receiving bids in water depths of greater than 400 meters. Bidding activity was led by interest in the Garden Banks and Keathley Canyon areas. In all, more than 50 percent of the tracts receiving bids in the sale were in these two areas. The top bidders in the sale included BP Exploration and Production, Inc. and Petrobras America Inc. BP submitted the highest bid, $21.0 million, for Keathley Canyon Block 58. Petrobras America Inc., submitted the second highest bid, $12.8 million, which went for Keathley Canyon Block 59. The high bids on each block will go through an evaluation process to ensure the public receives fair market value before a lease is awarded.  

Natural Gas Transportation Update:

• Southern Natural Gas Company announced unscheduled repairs at its Wrens Compressor Station located in Georgia. Though repairs should last about 3 weeks, most of the impact will take place on the weekends.During the weekends of August 12-13 and August 19-20, interruptible nominations from Southern LNG may be reduced by about 30,000 dekatherms per day (Dth/d). Southern also announced that the repairs at the White Castle compressor station that is located in South Louisiana are completed. Capacity on the west leg upstream of Franklinton compressor station is now on line and capacity increased from 655,000 Dth to 725,000 Dth effective August 11, 2006. Southern Natural Gas has announced service at the Woodcliff Compressor Station located in Georgia is back on line as of August 16, after an unscheduled outage caused by storms that went through the area. Pipeline capacity is now available to accept receipts from Southern LNG and capacity will be increased by about 90,000 Dth/d as of Wednesday, August 16.  
• El Paso Natural Gas Company (EPNG) announced on August 11, 2006, that the Strained Operating Condition (SOC) warning on the El Paso Natural Gas transmission system has been lifted.The SOC was lifted because of completion of maintenance projects and a reduction in customer imbalances. Also on August 11, EPNG reported that the two-day San Juan Crossover maintenance project was completed and capacity at the San Juan Crossover was raised to 415 MMcf/d effective August 11, and then increased to 615 MMcf/d the next day. Additionally, as of August 15, EPNG announced that both compressors at the Washington Ranch storage facility are unavailable for injection. One of the units is expected to become available on August 16, while the other compressor is expected to remain unavailable until August 23 because of damaged power heads. There will be no injection capability until August 16 and then only one-half capacity or about 70 MMcf/d until the middle of next week. Owing to the loss of operational flexibility EPNG announced that it may need to issue a SOC if line pack exceeds operational tolerances.  
• Tennessee Gas Pipeline announced on August 14, an emergency shut down at the Lowry Plant caused by a well blowout at a nearby location. There was no damage to the plant, but all employees had to be evacuated as a protective measure. Nominations at both the Lowry Plant and the Seahawk Lac Blanc meter have been zero. Owing to the blowout, the local electric company had to cut the power affecting the area where ANR's Lake Arthur Compressor Station and Natural Gas Pipeline of America's (NGPL) Trunkline Lakeside delivery meter station are located. The disruption of power resulted in the reduction of capacity at the Cameron Meadows station by 30 MMcf/d leaving 105 MMcf/d available and caused a force majeure at NGPL's Trunkline Lakeside delivery meter station. On August 16, the employees at the Lowery Plant were given clearance to return to work and NGPL has lifted the force majeure. Natural gas deliveries to the Seahawk Lac Blanc meter will be allowed to submit nominations effective August 17, 2006.  
• Owing to high temperature in the Florida natural gas market, Florida Gas Transmission Company issued an Overage Alert Day on Tuesday, August 15, with a 25 percent tolerance for negative daily imbalances.  

Short-Term Energy Outlook