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|An Assessment of Prices of Natural Gas Futures Contracts As A Predictor of Realized Spot Prices at the Henry Hub|
|Overview of U.S. Legislation and Regulations Affecting Offshore Natural Gas and Oil Activity|
|Changes in U.S. Natural Gas Transportation Infrastructure in 2004|
|Major Legislative and Regulatory Actions (1935 - 2004)|
|U.S. LNG Markets and Uses: June 2004|
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Overview: Thursday, March 22, 2007 (next release 2:00 p.m. on March 29, 2007)
As the bitter cold has evolved to more moderate temperatures, natural gas spot prices have eased through most of the country. During the report week (Wednesday–Wednesday, March 14-21), the Henry Hub spot price declined 4 cents per MMBtu to $6.82. At the New York Mercantile Exchange (NYMEX), prices for futures contracts were slightly higher, as increases Tuesday and yesterday (March 20 and 21) more than offset decreases that occurred in the 3 previous trading days. The futures contract for April delivery, which is the first contract following the current heating season, increased 7.7 cents per MMBtu on the week to $7.160. Relatively high levels of natural gas in working storage and decreasing prices for competing fuels likely contributed to falling natural gas spot prices this week. Working gas in storage as of Friday, March 16, was 1,533 Bcf, which is 18.5 percent above the 5-year (2002-2006) average. The spot price for West Texas Intermediate (WTI) crude oil decreased $1.17 per barrel on the week to $56.98, or $9.82 per MMBtu.
Spot natural gas prices moved lower this week, as weather-related demand generally declined through much of the country despite a cold weather front in the Northeast last weekend. Indicative of the unusually low natural gas demand, the first net injection into storage this year occurred in the week ending Friday, March 16. With less than 2 weeks left in the traditional heating season, storage supplies are viewed as ample and attention is already turning to how the injection season will shape up. On Monday, March 19, the average price at the Henry Hub was $6.69 per MMBtu, the lowest price since mid-January – just before a period of general price increases as colder weather arrived in the Lower 48 States after an unusually warm end to 2006. On the week, the price at the Henry Hub posted a net decline of less than 1 percent to an average of $6.82 per MMBtu. Price changes were largest in the Rockies, where the average price decrease was 91 cents per MMBtu. The price for gas on the Questar system in Colorado and Utah registered the steepest decline, falling $1.56 per MMBtu, or nearly 30 percent, to $3.70. The relatively large price decreases in the Rockies were linked to several transportation and storage developments, such as a major reduction in El Paso Natural Gas’s North Mainline capacity because of maintenance. Injection opportunities were reduced at Quester’s Clay Basin storage field, perhaps accounting for some of the price slide at the trading point. Price declines were geographically widespread, with prices outside of the Rockies falling between an average of 2 cents per MMBtu and an average of 31 cents at the various market regions across the country. There were scattered small increases at specific trading points in the Northeast, but prices in the region as a whole averaged a decline of 5 cents per MMBtu. After a cold weekend, more moderate weather moved into the Northeast, and prices for deliveries into New York City (Transcontinental Gas Pipe Line Zone 6) yesterday (March 21) were nearly $1 per MMBtu less than the high point during the week.
Although forecasts of moderating temperatures for late March led to an easing in the price of the NYMEX contract for April delivery in the first part of the week, trading in the last couple of sessions resulted in a slight net increase for the report week. The near-month contract ended the week at $7.160 per MMBtu, which is 7.7 cents higher than its close last Wednesday (March 14). Futures contracts through the end of the next heating season all rose on the week, albeit by a relatively small amount. As a result, the price of the 12-month strip, or the average price for contracts over the next year, increased by 11.5 cents per MMBtu, or 1.4 percent, to $8.189. The general price level of the near-month contract is similar to last year’s price at this time. The April 2006 contract expired at $7.233, which is 7.3 cents, or about 1 percent, higher than yesterday’s closing price for the April 2007 contract. Similar to last year, storage supplies are generally viewed as ample at this time. Additionally, significant concerns remain over the possibility of lost supplies from an active hurricane season, as well as North American well productivity. Unlike last year, imports of liquefied natural gas (LNG) appear on the rise as preliminary indications are that they have averaged more than 2 Bcf per day since the beginning of March. At this time last year, the difference between the Henry Hub price and the price for the NYMEX contract for delivery the following January (the month that is normally the highest price in the 12-month strip) had widened to $3.97 per MMBtu, a spread that was highly unusual. The spread (the Henry Hub price and the following January NYMEX price) this year, although lower, remains at a historically high $2.62 per MMBtu. Interestingly, the January 2007 contract expired on December 27, 2006, at just $5.838 per MMBtu. However, this followed an extraordinarily warm beginning of the 2006-2007 heating season, and it now appears that the January 2007 contract will be the lowest priced NYMEX contract for this winter heating season. Currently, the January 2008 contract is priced at $9.437 per MMBtu.
Recent Natural Gas Market Data
Working gas in underground storage was 1,533 Bcf as of March 16, which is 18.5 percent above the 5-year average inventory level for the report week, according to EIA’s Weekly Natural Gas Storage Report (See Storage Figure). The net change for the report week was an injection of 17 Bcf, the first injection of 2007. The net injection this week was the earliest and only the fifth injection coming before the end of the traditional heating season (end of March) in EIA’s 14-year database of weekly storage data. The net injection considerably expanded the difference between current inventories and the 5-year average to 239 Bcf (the 5-year average change for the week was a withdrawal of 64 Bcf). During the report week, the weather for the country as a whole was about 32 percent warmer than normal, as measured by heating degree-days (HDDs) for the week ending March 15, according to the National Weather Service (See Temperature Maps). Key markets for space heating demand were considerably warmer than normal. In the Middle Atlantic, HDDs were 15 percent lower than normal. In the East North Central, which includes Chicago and other major population centers in the Midwest, HDDs were 29 percent below normal.
Other Market Trends:
EIA Updates Web Site on Retail Gas Competition: The Energy Information Administration (EIA) has updated its web site on the status of natural gas residential choice programs in each State to include information through December 2006. According to the web site, Natural Gas Residential Choice Programs, enrollment in “customer choice” programs increased in 2006 for the first time since 2003, although the number of States allowing choice remained unchanged. Overall, about 12 percent or about 4.2 million of the approximately 35 million residential gas customers with access to choice were buying gas from marketers in 2006, up from the 3.9 million participating in 2005 and about 28,000 more than the record high in 2003. As of December 2006, 21 States and the District of Columbia have legislation or programs in place that allow residential consumers and other small-volume gas users to purchase natural gas from someone other than their traditional utility company. Georgia and Ohio continue to have the most comprehensive programs, accounting for about two-thirds of the enrollment total in 2006. The number of marketers offering services to residential customers increased or remained the same in all States but one, even though the overall total was about the same as in 2005 (82 vs. 81).
NOAA Reports on U.S. Winter Temperatures and Spring Outlook: According to scientists at the National Oceanic and Atmospheric Administration (NOAA), the overall temperature in the United States during the peak months of the 2006-2007 winter season (December through February) was near average while the global average temperature was the warmest on record for the same period. On a statewide basis, temperatures were warmer than average along the east coast and in the Midwest, while cooler-than-normal temperatures in some southern regions brought snow and ice as far south as Arizona, southern California, and south Texas. Because of the warmer-than-average temperatures in populated areas in the East and Midwest, NOAA calculated that the Nation’s residential energy demand was approximately 3 percent lower than what would have occurred under average climate conditions for the season. This calculation includes the 11th warmest December on record, the warmest January on record, and, in contrast, the 3rd coldest February on record. Seasonal residential energy demand for the month of February was about 6 percent higher than what would have occurred under average climate conditions for February. Looking ahead, NOAA predicts that above-normal temperatures are more likely in April through June across a wide area of the country from the West through the Plains and into the Southeast. Southwest California and Hawaii are expected to be colder than normal, while the remainder of the country has equal chances of above-, near-, or below-normal temperatures.
Natural Gas Transportation Update:
<![if !supportLists]>· <![endif]>Dominion Transmission Incorporated announced on Thursday, March 15, that it plans to take Unit 1 at Sardis station out of service April 9 for maintenance and inspection, which is expected to take 7 to 10 days. During the outage, producer compression in bubbles 4201, 4407, and 4408 must be shut in. The company further stated that it will monitor field pressure closely, as additional shut-ins may be necessary if pressure reaches high levels.
<![if !supportLists]>· <![endif]>Dominion also completed repairs on the Cornwell compressor station engine 9, bringing production in bubbles 3225, 3226, 3227, and 2207 back online on Saturday, March 17. The outage, which began on Wednesday, March 14, occurred as a result of exceedingly high line pressures.
<![if !supportLists]>· <![endif]>Southern California Gas Company declared a high-linepack operational flow order (OFO) for the Saturday, March 17, gas day through Wednesday, March 21. Charges were assessed in accordance with the company’s tariffs to customers whose deliveries onto the system exceeded 110 percent of their actual gas usage.
<![if !supportLists]>· <![endif]>Southern California Gas Company also announced that the injection capacity at the Goleta storage facility would be reduced by 15 MMcf per day between Monday, March 19, and Friday, March 23, as a new PLC controller needed to be installed on the facility’s Unit 7. However, the company added on Monday, March 19, that repairs to the fan system have caused the loss of 35 MMcf per day of injection capacity.
<![if !supportLists]>· <![endif]>Mississippi River Transmission Company (MRT) issued a system protection warning (SPW) for Wednesday, March 21, and until further notice, because of high linepack and warm weather forecasts. While the SPW is in effect, MRT will not schedule any volumes that result in a daily long position, and the pipeline will not accept any makeup of short positions. Furthermore, MRT will not schedule any southbound mainline interruptible or secondary firm capacity from any receipt point north of the Perryville compressor station.