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Overview: Thursday, March 1, 2007 (next release 2:00
p.m. on March 8, 2007) Natural gas
spot prices decreased at almost all market locations this week in spite of
continuing cold weather through most of the country and increasing crude oil
prices. For the week (Wednesday to
Wednesday), the spot price at the Henry Hub declined 27 cents per MMBtu, or
about 4 percent, to trade at $7.24 per MMBtu yesterday (February 28). The price of the NYMEX futures contract for April
delivery at the Henry Hub decreased 42 cents, or about 5 percent, this week,
closing yesterday at $7.300 per MMBtu, while the March contract expired at $7.547
per MMBtu on Tuesday, February 27.
Natural gas in storage as of Friday, February 23, decreased to 1,733 Bcf,
which is 11.5 percent above the 5-year average.
The spot price for West Texas Intermediate (WTI) crude oil gained $2.38 per
barrel since last Wednesday to trade yesterday at $61.78 per barrel or $10.65
per MMBtu, which is the highest price since late December. With
only 1 month left in the traditional winter heating season and still
above-average levels of natural gas in storage, pressure eased on natural gas
spot prices this week. The weather also contributed
to the decreasing prices. Although below
freezing weather persisted in the Northeast and areas of the Midwest,
temperatures have increased from the February lows, and spring-like
temperatures already have begun to spread across the South. Almost all market locations recorded
decreases this week mainly because of widespread declines on the past 2 days of
trading (Tuesday and Wednesday, February 27 and 28). Since Wednesday, February 21, price drops ranged
from 1 to 47 cents with several market locations unchanged. The Henry Hub spot price was $7.24 per MMBtu
yesterday, February 28, which is 27 cents less than the price on the previous
Wednesday. Elsewhere in Louisiana, price
decreases averaged 18 cents per MMBtu, resulting in an average spot price of
$7.18 per MMBtu in the State. Spot
prices at locations in the Rocky Mountains and the Northeast exhibited the
largest average declines, at 20 cents and 29 cents per MMBtu,
respectively. However, price levels in
these two regions differ significantly with the Rocky Mountains averaging the
lowest regional spot price yesterday at $6.40 per MMBtu, and the Northeast
averaging the highest at $7.74 per MMBtu.
Despite the widespread declines this week, the spot prices at almost all
market locations yesterday were between 24 cents and $1.52 per MMBtu higher
than the same day last year. The
price of the New York Mercantile Exchange (NYMEX) futures contract for April
2007 delivery at the Henry Hub settled at $7.300 per MMBtu yesterday in its second
day of trading as the near-month contract.
After small increases at the beginning of the report week (Thursday and
Friday, February 22 and 23), the contract price dropped by 51 cents in three
trading sessions, resulting in an overall loss of 42 cents per MMBtu, or about
5 percent, for the week. The March 2007
futures contract expired on Monday, February 26, at $7.547 per MMBtu, which
represents a 10-cent drop from the price last Wednesday and a 19-cent drop in
its tenure as the near-month contract. All
of the futures contracts for the upcoming year (April 2007 to March 2008)
decreased by at least 20 cents since last Wednesday, yet prices for contracts
during next winter are still as high as $9.300 per MMBtu. The 12-month strip decreased 31 cents per MMBtu, or about 4 percent, this week to average $8.180 per
MMBtu yesterday. On the same date last
year, the equivalent contracts (April 2006 to March 2007) averaged $8.312 per
MMBtu. Recent Natural Gas Market Data
Working
gas in storage decreased to 1,733 Bcf as of Friday, February 23, 2007,
according to the EIA Weekly Natural Gas
Storage Report (See
Storage Figure).
Storage levels are currently 179 Bcf, or 11.5 percent, above the 5-year
average, and 263 Bcf, or 13.2 percent, below the storage level at this time
last year. The implied net withdrawal of
132 Bcf is 3 Bcf, or about 2 percent, above the 5-year average net withdrawal
of 129 Bcf and 33 Bcf, or about 20 percent, below last year’s net withdrawal of
165 Bcf. This week’s net withdrawal is
the smallest withdrawal in 6 weeks and marks the first time since the end of
December that the weekly net withdrawal has been less than last year’s net withdrawal. For the week ending February 22, temperatures
were significantly colder than normal for all eastern and southern Census
Divisions as measured by the National Weather Service’s heating degree-days (See
Temperature Maps).
Temperatures in these areas, which ranged between 7 to 24 percent colder
than normal, likely influenced withdrawals from storage as home heating needs
continued to maintain strong demand for natural gas. Even with temperatures in the Mountain and
Pacific Census Divisions at 12 and 13 percent warmer than normal, the United
States was about 9 percent colder than normal overall. Since the beginning of the heating season
(November 1, 2006), cumulative net withdrawals have totaled about 1,719 Bcf. If net withdrawals from storage over the
remaining weeks of the heating season match the 5-year average, then cumulative
net withdrawals for the heating season will exceed the 5-year average heating
season net withdrawal of 1,921 Bcf by almost 5 percent. This would leave end of heating season
working gas stocks at around 1,440 Bcf, which is about 15 percent above the
5-year average level of 1,256 Bcf. Other Market
Trends: GAO Releases Report on Advanced Energy
Technologies: The U.S. Government
Accountability Office (GAO) in its February 28, 2007, report, DOE: Key Challenges Remain for Developing
and Deploying Advanced Energy Technologies to Meet Future Needs,
recommended that Congress consider further stimulating the development and
deployment of a diversified energy portfolio by focusing research and
development (R&D) funding on advanced energy technologies. The GAO report
examined R&D funding trends and strategies for developing advanced energy
technologies, key barriers to developing and deploying advanced energy
technologies, and current efforts. The report found that the Department of
Energy’s (DOE) current level of R&D funding is not sufficient to deploy
advanced energy technologies over the next 25 years. Furthermore, when adjusted
for inflation, DOE’s budget authority for energy R&D decreased 85 percent
from its peak in fiscal year 1978 compared with the level in fiscal year 2005.
DOE’s R&D efforts have resulted in steady incremental progress in reducing
costs for renewable energy, reducing emissions from coal-fired power plants,
and improving safety and efficiency for nuclear energy. However, these efforts
did not result in a decrease of the Nation’s dependence on fossil fuels over
the past 30 years. The report highlighted several key challenges in development
and deployment of advanced renewable, fossil, and nuclear energy technologies,
which included high capital costs, environmental concerns, and
technology-specific challenges. NOAA Reports La Niña Conditions May
Increase Hurricane Activity: In their
February 28 report, scientists at the National Oceanic and Atmospheric Administration
(NOAA) Climate Prediction Center noted that as the 2006-2007 El Niño faded,
surface and subsurface ocean temperatures rapidly decreased, which coupled with
the recently cooler-than-normal water temperatures in the east-central
equatorial Pacific, indicate a possible transition to La Niña conditions.
Typically, during the U.S. spring and summer months, La Niña conditions do not
significantly affect overall inland temperature and precipitation patterns.
However, La Niña episodes often do have an effect on Atlantic and Pacific
hurricane activity. La Niña conditions occur when ocean surface temperatures in
the central and east-central equatorial Pacific become cooler than normal.
These changes affect tropical rainfall patterns and atmospheric winds over the
Pacific Ocean, which influence the patterns of rainfall and temperatures in
many areas worldwide. NOAA noted that while other factors also affect the
frequency of hurricanes, there is generally a greater-than-normal number of
Atlantic hurricanes during La Niña events. During the winter, La Niña usually
results in drier and warmer-than-average conditions over the southern United
States. La Niña events at times follow El Niño conditions, and this naturally
occurring phenomenon may last up to 3 years. La Niña generally develops between
March and June, reaches peak intensity during December through February, and
then weakens during the following March through May. The last lengthy La Niña
conditions occurred in 1998 through 2001, resulting in serious drought
conditions in the western United States. RIK Sale in Wyoming Generates Increased
Revenues: A recent Minerals
Management Service (MMS) royalty-in-kind (RIK) natural gas sale in Wyoming is
expected to generate an additional $5 to $10 million compared with royalties
taken as cash payments. The RIK sale of 36 Bcf of natural gas, which is
approximately 120,000 MMBtu per day, was the first such sale from the fields in
Wyoming’s southwest region. The State of Wyoming will receive 50 percent of the
revenues generated by the sale. A total of 14 companies submitted bids on four
packages. Winning bidders included Sempra Energy Trading Corporation, UBS
Energy LLC, and Oneok Energy Markets and Trading Company, LP. Delivery of the
natural gas sold began in January and will continue through October 31, 2007.
The RIK program, which began as a pilot program 10 years ago, allows MMS to
take royalties “in kind” as product and then sell it competitively on the open
market. The program provides benefits by reducing regulatory costs, improving
efficiency, and shortening the compliance cycle, and has resulted in reduction
of administrative costs of nearly 50 percent compared with managing royalties
received in value. Natural Gas Transportation Update:
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