Overview:
Thursday, September 14 (next release 2:00 p.m. on September 21, 2006)
Since
Wednesday, September 6, natural gas spot prices decreased at most market
locations in the Lower 48 States. On
Wednesday, September 13, prices at the Henry Hub averaged $5.41 per MMBtu, decreasing
32 cents per MMBtu, or about 6 percent, since the previous Wednesday. The NYMEX futures contract for October
delivery at the Henry Hub settled at $5.449 per MMBtu on Wednesday, September
13, falling about 55 cents per MMBtu, or 9 percent, from the settlement price
of $5.994 recorded last Wednesday.
Natural gas in storage was 3,084 Bcf as of September 8, which is about 12
percent above the 5-year average. The
spot price for West Texas Intermediate (WTI) crude oil decreased $3.66 per
barrel, or about 5 percent, on the week (Wednesday-Wednesday) to $64.09 per
barrel or $11.05 per MMBtu.
Spot prices fell since last Wednesday, September 6, with
decreases ranging between 17 and 69 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. Price decreases were widespread with declines
in most regions averaging between 30 and 45 cents per MMBtu. By far the largest price decreases since last
Wednesday occurred in the Rocky Mountain region, where prices fell about $1.17
per MMBtu on average, as transportation constraints on gas flowing out of the
region contributed to declines of more than $1 per MMBtu on Wednesday,
September 13 (See Other Market Trends). Spot
prices at the Opal market location in the Rockies fell to $3.26 per MMBtu on the
same day (September 13)—its lowest level since April 29, 2003. Elsewhere, prices in the California and
Arizona/Nevada regions also had significant declines since last Wednesday,
September 6, falling 58, and 54 cents per MMBtu on average, respectively. Since August 1, when natural gas spot prices
peaked this summer at most market locations, prices have fallen between $2.26 and
$4.66 per MMBtu, or about 31 to 56 percent.
Prices are also below last year’s level at this time, with prices at the
Henry Hub about $5.28 per MMBtu or about 49 percent below last year’s level. This year’s lower price level reflects an
improved natural gas supply situation relative to last year owing greatly to
the absence of hurricane activity in the Gulf of Mexico this year. 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.
At the NYMEX, prices for the futures contracts for the
next 12 months fell across the board with the 12-month futures strip (October
2006 through September 2007) posting a decline of about 91 cents per MMBtu, or
about 10 percent, since last Wednesday, September 6. The largest declines on
the 12-month futures strip occurred for the futures contracts for delivery
during the heating season months (November 2006 through March 2007) as prices decreased
by about 11 percent on average since last Wednesday, September 6. Averaging $8.783 per MMBtu, the futures
contract prices for delivery during the upcoming heating season traded at an
average premium of about $3.37 per MMBtu to the Henry Hub spot price. Overall, the 12-month futures strip (October 2006
through September 2007) traded at a premium of $2.55 per MMBtu relative to the
Henry Hub spot price, averaging $7.96 per MMBtu as of Wednesday, September 13. Differentials of this magnitude between the
spot price and the futures contract prices provide suppliers strong economic
incentives to inject gas into storage.
Recent Natural Gas Market Data
|
Estimated Average Wellhead Prices |
||||||
|
|
Mar-06 |
Apr-06 |
May-06 |
June-06 |
July-06 |
Aug-06 |
|
6.52 |
6.59 |
6.19 |
5.80 |
5.82 |
6.51 |
|
|
Price
($ per MMBtu) |
6.35 |
6.42 |
6.03 |
5.65 |
5.67 |
6.34 |
|
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 3,084 Bcf as of Friday, September
8, which is about 12 percent above the 5-year average inventory level for the
report week, according to EIA’s Weekly Natural Gas Storage Report (See Storage Figure).
This is the earliest that working natural gas levels exceeded the 3,000 Bcf
mark in the 12-year history of the EIA Weekly Natural Gas Storage Report
Historical Database, and only the third time that the 3,000 Bcf level was
exceeded in September. For the week, the
implied net injection of 108 Bcf was 22 percent more than
the 5-year average of 89 Bcf and 33 percent above last
year’s injection of 81 Bcf. As of September 8, stocks
exceeded last year’s level by 339 Bcf and the 5-year average
by 341 Bcf. During the report week, temperatures in the Lower 48 States
were cooler than normal with cooling degree days (CDD) below normal levels in all
nine Census Divisions of the Lower 48 States, except the Mountain and Pacific
Census Divisions. Overall, cooling
degree days were about 16 percent below normal on average in the Lower 48
States. (See Temperature Maps)
Other Market Trends:
EIA Releases
Its September Short-Term Energy Outlook: According to the Energy Information
Administration’s (EIA) latest Short
Term Energy Outlook (STEO), released on September 12, 2006, natural gas spot
prices at the Henry Hub averaged about $6.74 per thousand cubic feet (Mcf) in
the summer of 2006 and are expected to increase in the upcoming winter owing to
winter heating fuel demand. However, the projected average spot price for 2006
of $7.51 per Mcf is lower than the 2005 average by $1.35 per Mcf. The 2007 spot price average is expected to increase
to about $8.30 per Mcf, assuming sustained high oil prices, normal weather, and
continued economic expansion in the United States. Total U.S. natural gas consumption in 2006 is
expected to fall by about 240 billion cubic feet (Bcf) or 1.1 percent below the
2005 level and then increase by about 880 Bcf or 4.1 percent in 2007. The relatively low consumption in 2006 is the
result of a large dropoff in residential consumption, which is expected to
decline in 2006 by 360 Bcf, or 7.5 percent, from 4.84 trillion cubic feet (Tcf)
in 2005. This decline is attributable
largely to the mild weather during the early months of 2006. By 2007, residential consumption is expected
to rebound to 4.89 Tcf, increasing by 8.4 percent on the year. The mild weather, in conjunction with
economic incentives posed by the relative positions of NYMEX futures contract
prices and spot prices, also resulted in working gas stocks in storage that
have been well above the 5-year average throughout this year. The high storage levels are expected to
continue, with natural gas working inventories projected to start this winter’s
heating season at the highest levels since 1990. Inventories are expected to
total 3,429 Bcf at the end of October, 298 Bcf above the 5-year average. Domestic dry natural gas production in 2006
is expected to increase by 1.1 percent to 18.45 Tcf and by another 1.5 percent
in 2007 to 18.73 Tcf.
NOAA Predicts Continuing El Nino
Conditions: The Climate Prediction Center at the National Oceanic
and Atmospheric Administration (NOAA) announced on Wednesday, September 13,
that weak El Nino conditions have developed in the equatorial Pacific. Scientists reported that ocean temperatures
have increased significantly in the past 2 weeks and these El Nino conditions
could continue into 2007. Since El Nino
helps to suppress hurricane activity by increasing vertical wind shear over the
Caribbean Sea, this development may partly explain why the Atlantic hurricane
season has been less active than previous predictions. NOAA adds, however, that the impacts of El
Nino have been small so far and weather conditions remain favorable for
hurricane formation. The most evident
result so far of the developing conditions is drier-than-average tropical
precipitation across Indonesia, Malaysia, and most of the Philippines. In the upcoming winter season, North America
will likely experience impacts including warmer-than-average temperatures over
western and central Canada and over the western and northern United States,
wetter-than-average conditions over portions of the Gulf Coast and Florida, and
drier-than-average conditions in the Ohio Valley and Pacific Northwest.
Natural Gas Transportation Update:
·
Gulf South
Pipeline Company began scheduled maintenance on the Jackson Compressor Station
in central Mississippi on Tuesday, September 12. The maintenance will last about 50 days and
may reduce capacity by as much as 125 million cubic feet (MMcf) per day.
·
Southern
California Gas Company issued a high-linepack Operational Flow Order (OFO) on
Friday, September 8, and kept it in place through Sunday, September 10. During the OFO, customers were directed to
deliver no more than 110 percent of their actual gas usage into the system.
·
Southern Natural
Gas Company declared an OFO on Friday, September 8, for shippers who created
positive imbalances exceeding scheduled volumes by 2 percent or 200 dekatherms,
whichever was less. The OFO continued
until Sunday.
·
Hess
Corporation’s Sea Robin Processing Plant, located in southern Louisiana, was
shut down unexpectedly on Wednesday, September 6, and did not resume processing
operations until Sunday around 4:30 p.m.
The plant continued to dehydrate during the outage, but asked shippers
to adjust gas flows and nominations as needed.
·
CenterPoint
Energy Gas Transmission Company announced a scheduled outage beginning October
5, at the Waskom Gas Processing Plant in Waskom, Texas. During the outage, which is expected to last
5 to 10 days, supplies into the Line F-185 will be shut in and receipts at the
tailgate of the plant will be unavailable.
·
Northwest
Pipeline Corporation is scheduled to begin a scheduled hydrotest for the Moab
District on Thursday, September 14, according to trade press reports. A hydrotest is a quality control method that
creates stress on pipeline walls in order to expose defects in the
pipeline. During the test, which is expected
to last until Monday, operational capacity at the Pleasant View Compressor
Station in Colorado will be reduced to zero.
An industry analyst estimates that the outage could reduce the Rockies’
access to the San Juan Basin by as much as 350 MMcf per day.
