Overview: Thursday, February 15, 2007 (next release
2:00 p.m. on February 22, 2007)
Natural gas spot prices increased this
week at most market locations as frigid temperatures and winter storms blanketed
the United States, particularly in the Northeast region. For the week (Wednesday to Wednesday, February
7 to February 14), the spot price at the Henry Hub increased $1.02 per MMBtu,
or about 13 percent, to trade at $8.91 per MMBtu yesterday (February 14). In contrast, the price of the NYMEX futures
contract for March delivery at the Henry Hub decreased 6 percent this week to
settle yesterday at $7.241 per MMBtu.
Natural gas in storage as of Friday, February 9, was 2,088 Bcf, which is
14.7 percent above the 5-year average.
The spot price for West Texas Intermediate (WTI) crude oil increased 25
cents per barrel, or less than 1 percent, since last Wednesday to trade
yesterday at $58 per barrel or $10 per MMBtu.
Space
heating demand continued to be strong this week as almost all regions east of
the Rockies experienced significantly colder-than-normal weather with below
freezing temperatures persisting across much of the northern and eastern
portions of the United States.
Temperatures placed upward pressure on prices, causing widespread gains
in natural gas spot prices of more than $3 per MMBtu in some areas. The Henry Hub spot price traded yesterday
(Wednesday, February 14) at $8.91 per MMBtu, which is $1.02 or about 13 percent
more than the price last Wednesday, and $1.88 more than the price at this time
last year. Spot prices at most other
locations in Louisiana also increased by more than $1 per MMBtu including
Southern Natural and Florida Gas Zone 3, where there were pipeline constraints
and prices climbed by more than $2 per MMBtu this week (see Natural Gas
Transportation Update). The average
regional price in Louisiana increased $1.27 per MMBtu to $9.15 per MMBtu
yesterday. By far, the largest price
gains this week were in the Northeast, which was hit by blizzard conditions in
some areas and frigid temperatures throughout.
Prices in this region increased $3.27 per MMBtu on average to trade yesterday
at an average regional price of $12.77 per MMBtu. This includes the price at the New York
citygate (Transco Zone 6 New York), which has fluctuated significantly lately
and averaged $19.08 yesterday. The
increase at this location was $7.72 per MMBtu since last Wednesday, with all
but $0.33 of the gain occurring during the past 2 trading days (February 13 and
14).
The price of the New York
Mercantile Exchange (NYMEX) futures contract for March 2007 delivery at the
Henry Hub settled at $7.241 per MMBtu yesterday (February 14), which is 47
cents, or about 6 percent, less than the price last Wednesday (February
9). The expected turnaround in
temperatures to more moderate levels by next month and the size of the
remaining working gas volumes in storage likely contributed to the decline in
futures contract prices. The relief in
weather would reduce demand pressure on prices.
The continuing large storage stocks pose the possibility of incremental natural
gas volumes entering the market before the end of the heating season as holders
of storage capacity rights strive to meet contractual obligations to ratchet
down storage volumes by specified dates.
The March contract price is currently between 7 cents and $2.12 per
MMBtu lower than any contract price over the next year. Furthermore, the March contract is currently
$1.67 below the Henry Hub spot price of $8.91 per MMBtu, which offers economic
incentive to withdraw natural gas from storage.
Prices of all the futures contracts for the upcoming injection season
(April through October) also decreased this week, although less than the March
contract, with declines ranging between 31 and 39 cents per MMBtu. The 12-month strip, which is the average
futures price for all contracts for the coming year, decreased 26 cents per MMBtu this week to average $8.056 per MMBtu yesterday. This
price is also significantly less than the Henry Hub spot price.
Recent Natural Gas Market Data
Estimated Average Wellhead Prices |
||||||
|
Aug-06 |
Sep-06 |
Oct-06 |
Nov-06 |
Dec-06 |
Jan-07 |
6.51 |
5.51 |
5.03 |
6.43 |
6.65 |
5.92 |
|
Price ($ per MMBtu) |
6.34 |
5.37 |
4.90 |
6.26 |
6.48 |
5.76 |
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 decreased to 2,088 Bcf as of Friday, February, 2007, according
to the EIA Weekly Natural Gas Storage
Report (See
Storage Figure).
Stocks are currently 14.7 percent above the 5-year average of 1,820 Bcf
and 8.5 percent below last year’s level of 2,281 Bcf. The implied net withdrawal during the week
was 259 Bcf, which is the second largest weekly net withdrawal (for the period
since 1994 when the weekly series begins) below only the 260 Bcf withdrawn
during the week ending January 17, 1997.
The implied net withdrawal is 74 percent more than the 5-year average
withdrawal for this week of 149 Bcf, and almost 3 times as much as last year’s
withdrawal of 92 Bcf. On a regional
basis, the East Region recorded a record high implied net withdrawal of 179 Bcf,
and the West and Producing Regions recorded 12 and 68 Bcf, respectively. The Producing Region withdrawal is tied for
the third highest. The larger-than-average
net withdrawal from storage reflects the impact of the strong backwardation in
prices and much colder-than-normal temperatures during the report week. Average temperatures for the Lower 48 States
have been decreasing steadily for the past 5 weeks. Heating degree-days in the Lower 48 States
for the week ended February 8 exceeded normal by 26 percent and last year’s
level by 56 percent. Heating degree-days
were between 12 and 44 percent above normal levels in the seven Census
Divisions east of the Rocky Mountains.
The West North Central, East North Central, Middle Atlantic, and New
England Census Divisions experienced particularly cold weather with average
temperatures for the week below 20 degrees (See Temperature
Maps).
Other Market
Trends:
Construction Progresses at
U.S. LNG Import Projects: The construction of new facilities to receive
liquefied natural gas (LNG) at four sites in the U.S. Gulf region is
proceeding. Freeport LNG L.P., which broke ground on its facility on Quintana
Island, Texas, in 2005, will likely be the owner of the first new onshore
terminal in the continental United States in more than 20 years. As of the end
of 2006, construction of the facility was 71 percent completed, according to
Cheniere Energy, Inc., which owns 30 percent of the company. Freeport LNG would
have one berthing dock that can receive tankers with capacity to transport
260,000 cubic meters of LNG, or nearly 6 Bcf. In its initial operations, the
facility would be able to vaporize 1.5 Bcf per day. This send-out capacity has
been purchased by ConocoPhillips Company and Dow Chemical Company. Cheniere
Energy projects the facility will be complete and ready for operations in the
first half of 2008. Cheniere Energy also is constructing a wholly-owned
facility, called Sabine Pass LNG, L.P., on 853 acres in Cameron Parish,
Louisiana. At the end of 2006, Cheniere Energy said that construction at the
Sabine Pass terminal was 65-percent complete and that the facility would reach
operational status in the first half of 2008. Sabine Pass would have two
berthing docks, each capable of handling ships with capacity to transport
265,000 cubic meters of LNG. In its first phase, Sabine Pass would be able to
vaporize 2.6 Bcf per day, with Total, S.A.; Chevron; and affiliate Cheniere Marketing
having purchased the capacity rights. Cameron LNG, which was approved by the
Federal Energy Regulatory Commission in December 2003 for a site on Lake
Charles, Louisiana, began construction in late 2005 and expects to begin
commercial operations by late 2008. As of January 2007, the construction of the
facility was 35 percent complete. The terminal’s owner, Sempra LNG, has reached
agreements to provide Tractebel LNG North America up to one-third of the
capacity, or about 500 million cubic feet (MMcf) per day, for 20 years.
Additionally, Italy’s ENI signed a preliminary agreement with Sempra to take
600 MMcf per day of capacity for 20 years. Finally, Golden Pass LNG Terminal,
LLC, has begun construction of its facility near Sabine Pass, Texas. Golden
Pass LNG, which is 70 percent owned by Qatar Petroleum Company with the
remaining portion owned equally by affiliates of Exxon Mobil Corporation and
ConocoPhillips Company, started construction in June 2006. Final commissioning
of the facility is expected to occur before the end of 2009. Golden Pass will
have send-out capacity of about 2 Bcf per day, with most of the LNG expected to
come from Qatar. Exxon Mobil and ConocoPhillips separately are involved in
massive liquefaction projects in that country. The construction of these LNG
facilities indicates the scope of new volumes of LNG that potentially can be
imported into the United States in the coming years. The volume of LNG imports
of liquefied natural gas (LNG) has decreased over the past 2 years, but EIA is
forecasting a trend of increasing LNG imports in both its long- and short-term
forecasts (See LNG
Imports – The Next Wave).
Natural
Gas Rig Counts Hit New Record Despite Declining Prices: The number of rigs drilling for natural gas
increased to 1,473 for the week ending February 9, according to Baker-Hughes
Incorporated. This is the highest gas-directed rig count for any week since
record keeping by fuel type began in 1987. The number of natural gas rigs is
about 11 percent greater than last year at this time, and about 69 percent
higher than the 5-year average for the report week. The share of natural
gas rigs drilling was more than 85 percent of the total rig count for the report
week, exceeding the 85-percent mark for the first time since the week ended
February 24, 2006. Natural gas rigs drilling have been on an increasing trend,
generally reflecting the increase in natural gas spot prices since 2002. The continued strength in natural gas
drilling suggests a possible departure from earlier trends in drilling response
to price changes. Gas rigs drilling have
tended to respond to the spot prices with a lag of 6 months of less. For
example, gas rigs drilling peaked and then declined in July 2001, demonstrating
a lagged response to the decrease in the spot price that began in January 2001.
The number of rigs drilling bottomed out in April 2002, after prices started to
increase in February of that year. More recently, natural gas spot prices have
declined from record levels attained in December 2005. Spot natural gas prices at the Henry Hub have
averaged $7.08 per MMBtu so far this year, which is 46 percent below the
average for December 2005. Although
prices are much lower in recent months, the number of natural gas rigs drilling
continued their upward trend. The continued increase in rigs drilling may be
attributed to changing business practices that affect the relative economics of
gas drilling and the overall higher level of prices. One factor is that producers are reported to have
been relying more heavily on price hedging to reduce price uncertainty. This business practice can insulate them from
at least some of the impact of the falloff in prices. Additionally, prices in recent years are at
levels that are significantly higher than those that prevailed through most of
the period up to mid 2002. Producers clearly
still have enough economic incentive to continue expansion of their efforts to
explore for and develop natural gas prospects, despite the large dropoff in
prices in the past year. (See
Rigs Drilling for Natural Gas)
Natural Gas Transportation Update: