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Overview: Thursday, December 14 (next release 2:00 p.m. on December 21, 2006)
Softening natural gas market conditions led to spot price decreases at most market locations in the Lower 48 States since Wednesday, December 6, with decreases ranging between $0.02 and $1.22 per MMBtu. The few price increases on the week were mostly confined to market locations west of the Rocky Mountains. On Wednesday, December 13, prices at the Henry Hub averaged $7.21 per MMBtu, decreasing $0.13 per MMBtu, or about 2 percent, since the previous Wednesday. The prices of futures contracts through December 2007 changed only slightly since December 6. The price for the January delivery contract decreased about 5 cents per MMBtu, or about 1 percent on the week (Wednesday-Wednesday), settling at $7.673 per MMBtu yesterday (December 13). Natural gas in storage was 3,238 Bcf as of December 8, which is 7.5 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil decreased 86 cents per barrel, or about 1 percent on the week to $61.34 per barrel or $10.58 per MMBtu.
Higher-than-average volumes of natural gas in underground storage and the return of warmer-than-normal weather across much of the country during the week ended December 13 led to spot prices decreases at most market locations in the Lower 48 States. The highest regional decrease on the week occurred in Florida at $0.57 per MMBtu, despite Florida Gas Transmission Company extending an overage alert day through the weekend (December 9-10). (See Other Market Trends) Trading locations in the Alabama/Mississippi region and the Rockies recorded average decreases of 40 cents and 37 cents per MMBtu, respectively. Price decreases in the Northeast region were somewhat less pronounced, averaging about $0.26 per MMBtu. However, several key Northeast market locations that serve large segments of the region had price decreases of more than $0.30 per MMBtu. Spot prices at a number of locations, mostly west of the Rockies, increased on the week. Prices in California increased 23 cents per MMBtu, to a regional average of $7.28. Similarly, trading locations in the Arizona/Nevada area recorded an increase of 11 cents per MMBtu to an average of $7.19 per MMBtu. As of yesterday, the average price in the Rocky Mountains of $5.63 per MMBtu was the lowest regional spot price average, and the only one under $6 per MMBtu. The average prices in the remaining trading regions in the Lower 48 States ranged yesterday between $6.681 per MMBtu in the Midcontinent and $7.688 per MMBtu in the Northeast.
Forecasts of warmer-than-normal temperatures for the remainder of December had somewhat of a neutralizing effect on the futures market. At the NYMEX, the price of the futures contract for January delivery at the Henry Hub decreased $0.054 per MMBtu or about 1 percent since Wednesday, December 6, to $7.673 per MMBtu. The $7.673-per MMBtu price of the January 2007 contract is significantly lower than the year-ago price of the January 2006 contract. In fact, on December 13, 2005, the January 2006 contract price settled at of $15.378 per MMBtu, which is an all-time high for a near-month futures contract. Similar to the January 2007 contract, the price for the February 2007 contract decreased $0.015 per MMBtu, while the price of the March 2007 contract recorded an increase of $0.053 on the week. Prices for the futures contracts for delivery during the remainder of the year (April-December) increased since Wednesday by an average of $0.069 per MMBtu or about 1 percent. Currently, the average price of the futures contracts for delivery during the refill season months exceeds the average price of the January-March contracts by 14 cents per MMBtu. The 12-month futures strip (January 2007 through December 2007) traded at a discount of $0.836 per MMBtu relative to the Henry Hub spot price, averaging $8.046 per MMBtu as of Wednesday, December 13, and increasing only slightly from last week’s level of $7.996 per MMBtu.
Recent Natural Gas Market Data
Working gas in storage decreased to 3,238 Bcf as of Friday, December 8, 2006, according to EIA’s Weekly Natural Gas Storage Report (See Storage Figure). The implied net withdrawal of 168 Bcf leaves storage levels 225 Bcf, or 7.5 percent, above the 5-year average, and 245 Bcf, or 8.2 percent above the storage level at this time last year. This week’s implied net withdrawal is 53 percent above the 5-year average of 110 Bcf, but about 7 percent below last year’s net withdrawal of 182 Bcf. Since the beginning of the heating season (November 1), net withdrawals totaled 211 Bcf, which is higher than both the 5-year average withdrawal of 172 Bcf and last year’s net withdrawal of 195 Bcf for the same time period. This week’s above average withdrawal likely resulted from the return of seasonal temperatures across much of the Lower 48 States, especially in the major population centers of the Midwest (See Temperature Maps). The East North Central Census Division, which includes Chicago and other large consuming areas, and the West North Central Census Division experienced temperatures that were 24 and 22 percent colder than normal, respectively, as measured by the National Weather Service heating degree-days. For the week ended December 7, temperatures for the Lower 48 States as a whole were about 12 percent colder than normal, but about 12 percent warmer than last year for the same week. In fact, all Census Divisions except for the East South and West South Central Census Divisions recorded temperatures that were warmer than last year.
Other Market Trends:
EIA Releases the November Short-Term Energy Outlook: The Energy Information Administration (EIA) released the latest Short Term Energy Outlook (STEO), on December 12, 2006. With projected colder weather during the first 3 months of 2007, compared with the same period in 2006, natural gas spot prices at the Henry Hub are expected to average about $8.58 per thousand cubic feet (Mcf) in the first quarter of 2007. The $8.58 per Mcf price is approximately $0.65 per Mcf higher than in the first quarter of 2006. The Henry Hub spot price is projected to average $7.06 per Mcf in 2006 and increase to $7.87 per Mcf in 2007. A combination of forecasted warmer-than-normal weather this winter and high levels of natural gas in storage are likely to keep monthly average natural gas spot prices below $9 per Mcf throughout the heating season. Total U.S. natural gas consumption in 2006 is expected to decline by 0.5 percent relative to last year, primarily because of warm weather early in the year. Assuming the weather returns to normal, consumption is likely to increase by 1.5 percent in 2007. Domestic dry natural gas production is likely to increase by about 2.3 percent in 2006, then decrease in 2007 by 0.7 percent. As of December 1, the level of working gas in storage was 3,406 billion cubic feet (Bcf), which was 232 Bcf above the level last year at the same time and 282 Bcf higher than the 5-year average.
EIA Releases the Reference Case for the 2007 Annual Energy Outlook: On Tuesday, December 5, the Energy Information Administration (EIA) released reference case projections for the 2007 Annual Energy Outlook Early Release (AEO), which presents long-term forecasts of energy supply, demand, and prices through 2030. The results, which are estimated using EIA’s National Energy Modeling System, show that total energy demand is projected to increase from 100.2 quadrillion Btu (quads) to 131.2 quads between 2005 and 2030, an average annual increase of 1.1 percent. According to the reference case, natural gas consumption is projected to increase from about 22.6 quads in 2005 to 26.9 quads in 2030. This projection is down, however, from previous editions of the AEO that showed consumption increasing to 30 quads or more in 2030. This partly reflects a decline in projected natural gas consumption for electricity generation between 2020 and 2030. On the supply side, dry natural gas production is projected to increase from 18.77 quads in 2005 to 21.15 quads in 2030. The increased production is mainly due to the completion of an Alaskan natural gas pipeline in 2018, and an increase in unconventional production that is expected to account for 50 percent of domestic U.S. natural gas production in 2030. Net liquefied natural gas (LNG) imports also are expected to increase by about 4 quads between 2005 and 2030. Prices for natural gas are projected to decrease over the early years of the AEO projection. The average lower 48 wellhead price is expected to decrease from $7.29 per MMBtu in 2005 to $4.84 per MMBtu in 2015 (2005 dollars) owing to improved technology, production expansion from increased drilling, and new import sources. After 2015, the wellhead price is expected to rise, reaching $5.80 per MMBtu in 2030. The reference case represents a baseline set of projections under existing policies and economic and technological constraints. Some possible policy changes, such as the adoption of policies to limit or reduce greenhouse gas emissions, could change the reference case projections significantly. The full publication, which will be released in early 2007, will include expanded documentation and over 30 additional cases.
Natural Gas Transportation Update:
<![if !supportLists]>· <![endif]>Three pipeline companies had restrictions in place between Thursday, December 7, and Saturday, December 9, owing to cold temperatures across the service areas. East Tennessee Natural Gas Company implemented a Maximum Allowable Delivery service, Mississippi River Transmission Corporation had a System Protection Warning, and Southern Natural Gas Company had an operational flow order (OFO) in place for short imbalances.
<![if !supportLists]>· <![endif]>Florida Gas Transmission Company issued an Overage Alert Day notice on Friday, December 8, in anticipation of forecasted freezing temperatures. The restriction set a 25 percent tolerance for negative daily imbalances.
<![if !supportLists]>· <![endif]>After a mechanical failure at Greasewood Compressor Station last week in Rio Blanco County, Colorado, Questar Pipeline Company reduced nominations to the TransColorado Pipeline to 35,000 decatherms (Dth) per day. According to Questar, the repairs are expected to be complete by the Thursday of this week.
<![if !supportLists]>· <![endif]>Kern River Gas Transmission Company announced on Tuesday, December 12, that high line pack exists on the entire system that ships gas from the Rockies to Utah, Nevada, and California. Shippers and operators were asked to remain close to volumes as specified in their contracts this week.
<![if !supportLists]>· <![endif]>Gulf South Pipeline Company began scheduled maintenance on Monday, December 6, at the Jackson Compressor Station in Flowood, Mississippi. The maintenance, which was expected to last for 6 days, may have reduced capacity by as much as 125 MMcf per day.