Natural Gas

Overview: Thursday, April 5, 2007 (next release 2:00 p.m. on April 12, 2007)

Since Wednesday, March 28, natural gas spot prices generally increased at most market locations in the Lower 48 States, while declining at selected markets. Prices at the Henry Hub declined a penny since Wednesday, March 28, to $7.46 per MMBtu.At the NYMEX, the futures contract for May delivery at the Henry Hub declined 16 cents per MMBtu, or about 2 percent since Wednesday, March 28, to settle at $7.515 per MMBtu yesterday (Wednesday, April 4). Natural gas in storage was 1,569 Bcf as of March 30, which is 27 percent above the 5-year average (2002-2006). The spot price for West Texas Intermediate (WTI) crude oil increased 29 cents per barrel on the week (Wednesday-Wednesday) to $64.40 per barrel or $11.10 per MMBtu.  

Prices:

Spot prices increased at most market locations since last Wednesday, March 28.A return to winter-like conditions across large portions of the Lower 48 States, including the Northeast, Midwest, South, and Pacific Northwest, likely contributed to the price increases, as cold temperatures increased heating demand for natural gas. The increased heating demand for natural gas likely competed with injection demand for natural gas as many storage operators in parts of the Lower 48 States began replenishing their working gas stocks. Pricing patterns were mixed since last Wednesday, March 28, as a little more than half of the market locations in the Lower 48 States posted gains ranging between $0.20 and $1.00 per MMBtu, while the remaining markets were within 19 cents per MMBtu on either side of last Wednesday's level. Price increases since last Wednesday, March 28, ranged between 30 and 87 cents per MMBtu on average in Texas and averaged 84 cents per MMBtu in the Arizona and Nevada markets. Despite posting the largest average gains since last Wednesday, March 28, the West Texas and Nevada/Arizona regions traded at a discount relative to other regions in the Lower 48 States, with spot prices averaging $6.81 and 6.96 per MMBtu. Meanwhile, prices in the Rocky Mountains and Louisiana regions gained 22 and 3 cents per MMBtu on average, respectively-among the smallest average regional increases in the Lower 48 States since last Wednesday, March 28. Prices in the Rocky Mountains region were unusually volatile in trading since last Wednesday, March 28. This increased variability doubtlessly resulted in part from work at the Clay Basin Storage facility that began on March 27, which caused a supply glut at most market locations in the region leading to price declines Monday, April 2, ranging between $1.35 and $2.75 per MMBtu. The price at the Northwest Pipeline trading location in northwest Colorado/south Wyoming fell to $1.78 on April 2-the lowest level since November 13, 2006.Nevertheless, prices at the Rocky Mountains market locations increased in trading on Tuesday, April 3, with gains between $1.23 and $2.49 per MMBtu. At an average price of $5.40 per MMBtu on Wednesday (April 4), prices in the region are among the lowest in the Nation and are more than $2 below the Henry Hub. Prices at the key consuming regions of the Midwest and Northeast increased 8 cents and 40 cents per MMBtu on average since last Wednesday, March 28, climbing to $7.59 and $8.36 per MMBtu, respectively. In general, prices exceeded levels reported last year at this time, with prices at the Henry Hub 44 cents per MMBtu or 6 percent above last year's level, while prices in the Rocky Mountains region were about 46 cents per MMBtu or about 8 percent below last year's level.  

At the NYMEX, prices for the futures contracts for the next 12 months decreased across the board with the 12-month futures strip (May 2007 through April 2008) falling about 12 cents per MMBtu, or about 1 percent, since last Wednesday, March 28. Prices declined slightly in the futures markets as the end of the winter season approached and supply concerns lessened with the expectation that storage stocks would end the heating season at the second-highest level in at least 15 years. The price of the NYMEX futures contract for May delivery at the Henry Hub settled at $7.515 per MMBtu on Wednesday, April 4, falling about 16 cents per MMBtu, or 2 percent. Prices for delivery in the ensuing refill season months (June through October) decreased by a little more, with declines ranging between 16 and 18 cents per MMBtu. Overall, the 12-month futures strip (May 2007 through April 2008) traded at a premium of about $1.03 per MMBtu relative to the Henry Hub spot price, averaging $8.49 per MMBtu as of Wednesday, April 4.

Recent Natural Gas Market Data

 Storage:

Working gas in storage totaled 1,569 Bcf as of Friday, March 30, which is about 27 percent above the 5-year average inventory level for the report week, according to EIA's Weekly Natural Gas Storage Report (see Storage Figure). As of March 30, stocks were 127 Bcf below the 1,696 Bcf in storage at this time last year, yet still exceeded the 5-year average by 337 Bcf. On the week, net injections into working gas storage totaled 58 Bcf compared with the 5-year average withdrawal of 12 Bcf and last year's net withdrawal of 24 Bcf for the same report week. Warmer-than-normal temperatures likely contributed to the above-normal injections as heating degree-days fell below both the normal level and last year's level by significant margins in each of the Census Divisions (see Temperature Maps). In the high gas-consuming areas of the New England, Middle Atlantic, and East North Central Census Divisions, heating degree-days ranged between 15 and 65 percent below historical norms. The Pacific and Mountain Census Divisions fell below historical norms by 10 and 19 percent, respectively.    

Other Market Trends:

Active 2007 Atlantic Hurricane Season Projected: The 2007 Atlantic hurricane season is expected to be much more active than the average (1950-2000) season according to forecasts by Colorado State University's Tropical Meteorology Project.Updated forecasts were released on Tuesday, April 4, 2007, in a report by Philip J. Klotzbach and William M. Gray titled Extended Range Forecast of Atlantic Seasonal Hurricane Activity and U.S. Landfall Strike Probability for 2007. The authors expect that net tropical cyclone activity in 2007 will be about 185 percent of the long-term (1950-2000) average with 17 named storms (compared with an average of 9.6), 9 hurricanes (compared with 5.9), and 5 intense hurricanes (compared with 2.3). The report also predicts U.S. major hurricane landfall will be about 140 percent of the long-period average. The increased hurricane activity forecasts are mainly due to rapid dissipation of El Niño conditions and warm sea surface temperatures in the Atlantic Ocean combined with weak to moderate or neutral La Niña conditions. Typically, during the U.S. spring and summer months, La Niña conditions do not significantly impact overall inland temperature and precipitation patterns. However, La Niña episodes often have an effect on Atlantic and Pacific hurricane activity.

EIA Releases Overview of the Natural Gas Industry and Markets in 2006:

The Energy Information Administration (EIA) released a special report on March 30, 2007, detailing the natural gas industry and markets in 2006.This summary article, titled Natural Gas Year-in-Review 2006, is intended to coincide with the first appearance of supply and disposition data for 2006 from EIA, released in the February 2007 Natural Gas Monthly.According to Natural Gas Year-in-Review 2006, tightness in natural gas markets was somewhat alleviated in 2006 because of lower winter heating demand, higher-than-average storage inventories, and growth in onshore production.Markets were further aided by a relatively calm hurricane season, which allowed for continued recovery from the major 2005 hurricanes.Consequently, most natural gas prices declined since the record high prices in late 2005.Warmer-than-normal temperatures throughout most of 2006 allowed for reduced heating demand and limited withdrawals from storage during the winter months, but prompted demand for natural-gas-fired power generation during the summer months. Overall, natural gas consumption in 2006 was between 2 and 9 percent lower than in 2005 in the residential, commercial, and industrial sectors, but 6 percent higher in the electric power sector.Total marketed production of natural gas increased 2 percent over 2005 levels, despite significant declines from the Federal Gulf of Mexico.Marketed production outside the Federal Gulf of Mexico was 4 percent more than in 2005, reflecting record onshore drilling rates and significant development of pipeline mileage and capacity.The net volume of natural gas imports declined 5 percent from 2005 to 2006.Canadian imports decreased for the first time in 3 years and the volume of imported liquefied natural gas (LNG) declined as well.Most of the data for this article were derived from weekly and monthly EIA products. Final data for 2006 will be released in the Natural Gas Annual 2006, which is scheduled to be released in December 2007.

Natural Gas Transportation Update:

• Dominion Transmission Incorporated announced that the liquefied natural gas (LNG) terminal at Cove Point, Maryland, will be closed between June 1 and June 30, 2007, because of construction related to facility expansion. The March 30 announcement indicated that during the outage, plant construction will take place that involves the cryogenic pipelines.Additionally, the work will preclude any ship from docking at the pier, limiting the sendout to boil off.
• Questar Pipeline Company announced that as of April 1, no imbalance payback nominations will be accepted at the Clay Basin storage facility either to or from the pipeline.
• Southern Natural Gas Company issued an unscheduled outage notice at its Pavo compressor station in south Georgia. The unit may return to service on Friday, April 6.According to the company, it does not expect the outage to have an impact on firm transportation volumes because of the current forecasted demand, but interruptible volumes may be affected.Southern Natural Gas Company also notified its customers that maintenance on the Mississippi Canyon 397 line has been delayed because of contractor issues and the company will post a new start date as soon as it becomes available.
• Mississippi River Transmission Corporation lifted its system protection warning (SPW) on April 3, 2007. The SPW was implemented on March 21 because of high linepack and warm weather forecasts.
• Gulf South Pipeline declared a force majeure on its Index 129 segment at mile post 44 south of the Edna compressor station because of a pipeline leak.Beginning Thursday, April 5, no service will be available on that pipeline segment.

Short-Term Energy Outlook