Overview:  Thursday, May 24, 2007 (next release 2:00 p.m. on May 31, 2007)

Natural gas spot prices decreased or remained unchanged at almost all trading locations in the Lower 48 States since Wednesday, May 16, 2007.  For the week (Wednesday – Wednesday, May 16 to May 23), the spot price at the Henry Hub decreased 9 cents, or about 1 percent, to $7.53 per MMBtu.  The price of the NYMEX futures contract for June delivery settled at $7.757 per MMBtu yesterday, which is 13 cents or about 2 percent less than last Wednesday.  As of Friday, May 18, 2007, natural gas in storage was 1,946 Bcf, or 20.7 percent above the 5-year average.  The spot price for West Texas Intermediate (WTI) crude oil was $65.10 per barrel or $11.22 per MMBtu as of yesterday.  This is $2.53 per barrel more than the price last week, an increase of about 4 percent.

 

 

 

Prices:

As the spring season proceeds, the country is anticipating hot summer temperatures and an active Atlantic hurricane season, as predicted by the National Oceanic and Atmospheric Administration (see below).  For now, however, most of the country is enjoying moderate temperatures with small areas of lingering heating load that is keeping natural gas spot prices from fluctuating too far in any one direction.  While spot prices at many trading locations were up by the middle of the report week (Wednesday to Wednesday, May 16 to May 23), almost all prices ended the week less than or about equal to last Wednesday’s prices.  The Henry Hub spot price, which reached as high as $7.87 on Friday, May 18, finished the week at $7.53 per MMBtu yesterday, a decrease of 9 cents or about 1 percent on the week.  A similar pattern prevailed in South and East Texas, where markets experienced gains as large as 25 cents early in the report week.  A lack of weather-related demand, however, resulted in an average regional price of $7.34 per MMBtu yesterday, which is 11 cents less than last Wednesday.  The highest spot prices are currently in the Northeast, which is still experiencing temperatures causing some heating load.  The average regional price in this region yesterday was $8.15 per MMBtu, which is 2 cents less than the price last Wednesday.  At the other end of the spectrum is the Rocky Mountain region where many markets were trading at prices less than $4 per MMBtu.  The lack of weather-based load in this region is reflected by the average regional price of $4.81 per MMBtu yesterday, a decrease of 24 cents per MMBtu on the week.  The net decrease in this region occurred despite price increases at two El Paso trading locations (Bondad and non-Bondad) of 74 cents and 59 cents, respectively, on the week as capacity was restored after a total outage on the San Juan Crossover.

 

 

 

 

At the NYMEX, the price of the futures contract for June delivery at the Henry Hub decreased to $7.757 per MMBtu yesterday (May 23), which is 13 cents, or about 2 percent less than the price last Wednesday, May 16.  There were relatively small movements on the NYMEX this week as all of the contracts for months after June decreased by no more than 11 cents per MMBtu on the week.  For contracts over the next year, the highest prices continue for delivery during the heating season (November 2007 – March 2008).  The average price for these contracts was $9.661 per MMBtu yesterday, which is 2 cents less than the price last Wednesday.  Because the Henry Hub spot price decreased by a larger amount than this price, the premium between the heating season contract prices and the Henry Hub spot price increased from $2.06 last Wednesday to $2.13 yesterday.  The 12-month strip, or the average price for contracts over the next year (June 2007 – May 2008), closed yesterday at $8.764 per MMBtu, a decline of 5 cents per MMBtu on the week.   

 

 

Recent Natural Gas Market Data

 

Estimated Average Wellhead Prices
	Nov-06	Dec-06	Jan-07	Feb-07	Mar-07	Apr-07
Price ($ per Mcf)	6.43	6.65	5.92	6.66	6.56	6.84
Price ($ per MMBtu)	6.26	6.48	5.76	6.48	6.39	6.66
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.

 

 

Storage:

Working gas in storage was 1,946 Bcf as of Friday, May 18, 2007, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure).  Stock levels are currently 20.7 percent above the 5-year average of 1,612 Bcf, but 9.5 percent below last year’s level of 2,151 Bcf.  The implied net injection this week was 104 Bcf, which is relatively large compared with both the 5-year average injection (85 Bcf) and last year’s injection (84 Bcf).  This is the fourth week in a row that the implied net injection has exceeded both the 5-year average and the equivalent net injection last year, which means the storage overhang compared with the 5-year average has increased to 334 Bcf.  One factor contributing to the large injections of natural gas was moderate, spring-like temperatures for most of the Nation during the report week (see Temperature Maps).  Although temperatures for most of the country were warmer than normal as measured by heating and cooling degree-days published by the National Weather Service, average temperatures were mostly between 55 and 75 degrees Fahrenheit, which limited any weather-based demand for natural gas.  Another factor that may have contributed to the relatively large net injection was the relatively large premium for futures contracts for delivery of natural gas next winter.  When the futures prices are above spot prices, market participants have large economic incentives to place natural gas into storage.

 

 

 

Other Market Trends:

NOAA Predicts a More Active Than Normal 2007 Atlantic Hurricane Season: In their May 22, 2007, outlook, scientists at the National Oceanic and Atmospheric Administration (NOAA) Climate Prediction Center (CPC) project a 75 percent chance that the storm activity in the 2007 Atlantic Hurricane Season will be above normal, and recommend that hurricane-prone regions begin their preparation plans. According to the report, NOAA predicts 13 to 17 named storms, with 7 to 10 becoming hurricanes. Furthermore, three to five of the predicted hurricanes could become major hurricanes of Category 3 or stronger. Conditions conducive to above-average hurricane season activity continue, such as warmer-than-normal sea surface temperatures in the Atlantic Ocean and the El Niño/La Niña cycle. While some uncertainty remains related to the La Niña event, the CPC indicates that La Niña could form in the next 1 to 3 months, and if it develops, storm activity may be even higher than predicted, depending on the strength of the La Niña event.

 

EIA’s International Outlook for Natural Gas:  The Energy Information Administration (EIA) projects that consumption of natural gas will increase from 100 trillion cubic feet (Tcf) in 2004 to 163 Tcf in 2030, according to the International Energy Outlook 2007 (IEO2007).  The report, released Monday, May 21, provides projections of worldwide energy markets by fuel type and region to the year 2030.  EIA expects natural gas to remain a key fuel in the electric power and industrial sectors because of its relative fuel efficiency and its potential to displace coal and liquids in the effort to reduce carbon dioxide emissions.  The industrial sector, which accounted for 44 percent of world natural gas consumption in 2004, is projected to increase consumption at an average annual rate of 1.9 percent between 2004 and 2030. The increase in total consumption is most rapid in countries outside of the Organization for Economic Cooperation and Development (OECD).  In the IEO2007, natural gas consumption in the non-OECD countries is projected to increase 2.6 percent on average per year between 2004 and 2030, compared with an average annual growth of 1.2 percent for the OECD countries.  EIA projects that production increases also will be more rapid in the non-OECD countries.  Natural gas production in the non-OECD countries increases by an average of 2.6 percent per year in the IEO2007, compared with an average increase of only 0.4 percent per year for OECD countries.  As a result, the OECD countries, which accounted for 40 percent of world natural gas production and 52 percent of consumption in 2004, are expected to account for 27 percent of production and 43 percent of consumption in 2030.  EIA projects that this will lead OECD countries to increase the amount of imports to meet natural gas demand, including greater amounts of liquefied natural gas (LNG).  In 2030, more than one-third of the natural gas consumed in OECD countries is projected to come from other parts of the world, compared with 22 percent in 2004.    

 

Carbon Dioxide Emissions from Fossil Fuels Declined in 2006:  U.S. carbon dioxide emissions from burning fossil fuels decreased by 1.3 percent in 2006, from 5,955 million metric tons of carbon dioxide (MMTCO2) in 2005 to 5,877 MMTCO2 in 2006, according to preliminary estimates released May 23 by the Energy Information Administration (EIA).  The economy, as measured by Gross Domestic Product (GDP), grew by 3.3 percent and energy demand fell by 0.9 percent, indicating that energy intensity (energy use per unit of GDP) fell by 4.2 percent. Carbon dioxide intensity (CO2 emission per unit of GDP) fell by 4.5 percent. Factors that drove emissions lower include weather conditions that reduced the demand for heating and cooling services; higher energy prices for natural gas, motor gasoline, and electricity that reduced energy demand; and the use of a less carbon-intensive fuel mix (more natural gas and non-carbon fuels) in the generation of electricity.  Through 2006, total U.S. energy-related carbon dioxide emissions have grown by 17.9 percent since 1990. Energy-related carbon dioxide emissions account for over 80 percent of U.S. greenhouse gas emissions.  EIA will continue to refine its estimates of 2006 carbon dioxide emissions as more complete energy data become available. A full inventory of 2006 emissions of all greenhouse gases to be issued in November 2007 will present revised energy data and provide a further analysis of trends.

 

Natural Gas Transportation Update:

·                    Columbia Gulf Transmission Company (CGT) issued a critical notice on Tuesday, May 22, stating that it is not allowing any payback of imbalances or creation of positive imbalances until further notice.  Shippers currently holding a positive imbalance must draw down the imbalance as soon as possible.  If conditions are not met, CGT may issue customer-specific operational flow orders (OFOs).  Shippers and operators were reminded that penalties may be assessed if there is a failure to comply.  In order to avoid these penalties, imbalances must be removed by the end of the calendar month in which they are reported to the shipper. 

 

·                    Pacific Gas and Electric Company (PG&E) issued a systemwide Stage 2 high-inventory OFO for Saturday, May 19. The pipeline set penalties of $1 per decatherm (Dth) for exceeding a positive daily imbalance tolerance of 10 percent. The OFO was declared as a result of maintenance on lines 1300 and 1301 and the continuing problems associated with it.  PG&E issued a second OFO for Thursday, May 24, also setting penalties of $1 per Dth for exceeding a positive daily imbalance tolerance of 5 percent.

 

·                    Northwest Pipeline Corporation announced May 21 a reminder to all shippers that maintenance at the Burley and Lava Hot Springs compressor stations would take place between May 24 and 30. Capacity at the Burley compressor station will be reduced from 593,000 to 469,000 Dth per day for gas days May 24 and 25, and capacity at the Lava Hot Springs compressor station will be reduced from 648,000 to 578,000 Dth per day for gas days May 29 and 30. On Wednesday, May 23, however, Northwest changed the maintenance schedule for the Lava Hot Springs compressor station, stating that maintenance will take place only on May 30, and that the available capacity is estimated to be 578,000 Dth per day. 

 

·                    Panhandle Energy announced that the Terrebonne Gas Processing Plant was shut in on Tuesday, May 22, and Wednesday, May 23. Furthermore, the company expects that it will only have 50 percent operational capacity on May 24. Panhandle advised shippers that nominations for plant thermal reduction quantities should be at 50 percent tolerance levels on May 24.  The plant expects to become fully operational by Friday, May 25.

 

·                    El Paso Natural Gas Company announced on Saturday, May 19, that maintenance on the San Juan Crossover has been completed.  Capacity was raised to 420 MMcf per day on Cycle 3 for a delivery date of May 19, 2007, and the capacity level for May 20 was raised to 628 MMcf per day.

 

·                    Southern California Gas Company declared a high-linepack OFO for Saturday May 19.  During the OFO period, the pipeline assessed buy-back charges in accordance with its tariffs to customers who delivered more than 110 percent of their actual gas usage into the system.

 

 Short-Term Energy Outlook