Natural Gas

Overview: Thursday, May 31, 2007 (next release 2:00 p.m. on June 7, 2007)

Since Wednesday, May 23, natural gas spot prices generally increased at most markets in the Lower 48 States outside the Rocky Mountains and Midcontinent regions. Prices at the Henry Hub climbed 18 cents per MMBtu, or 2 percent, since Wednesday, May 23, to $7.71 per MMBtu. At the NYMEX, the futures contract for July delivery at the Henry Hub settled yesterday (May 30) at $7.941 per MMBtu, equaling its value last Wednesday, May 23. The futures contract for June delivery at the Henry Hub expired on Tuesday, May 29, at $7.591 per MMBtu, posting a decline of 24 cents per MMBtu or about 3 percent during its tenure as the near-month contract. Natural gas in storage was 2,053 Bcf as of May 25, which is 21 percent above the 5-year average (2002-2006). The spot price for West Texas Intermediate (WTI) crude oil declined $1.63 per barrel on the week (Wednesday-Wednesday) to $63.47 per barrel or $10.94 per MMBtu.  

Prices:

Natural gas prices increased up to 25 cents per MMBtu on average at most market locations since last Wednesday, May 23, while prices in the Midcontinent and Rocky Mountains regions posted declines of up to 25 cents per MMBtu. Heading into the Memorial Day holiday weekend on Friday, May 25, natural gas spot prices declined at virtually all market locations in the Lower 48 States, as mild temperatures and expected lower industrial demand during the holiday weekend contributed to downward pressure on prices. Falling prices on Friday, May 25, were particularly pronounced in the Rocky Mountains region where regional transportation constraints resulted in a supply glut that led prices at selected market locations in the region to fall to as low as $2.01 per MMBtu. Nevertheless, the return of industrial demand and increased power generation demand following the Memorial Day holiday (May 28), as well as injection demand for natural gas, contributed to a price rally that more than offset the earlier declines at most market locations. The largest price increases since last Wednesday, May 23, occurred principally in the Northeast, East Texas, and Florida regions, where average prices increased by 31, 26, and 25 cents per MMBtu, respectively. In other regions, average price increases by region since last Wednesday, May 23, ranged between 8 and 18 cents per MMBtu. The exceptions to this pattern of increasing regional prices occurred in the Rocky Mountains and Midcontinent regions, where prices declined 5 and 14 cents per MMBtu on average since last Wednesday, May 23. In general, prices exceeded levels reported last year at this time, with prices at the Henry Hub $1.50 per MMBtu or 24 percent above last year's level. The principal exception occurred in the Rocky Mountains region, where prices at selected markets were between $1.70 and $2.19 per MMBtu or about 33 and 44 percent below last year's level.  

At the NYMEX, prices for the futures contracts for delivery in the next 12 months generally decreased with the 12-month futures strip (July 2007 through June 2008) falling about 2 cents per MMBtu, or less than 1 percent, since last Wednesday, May 23. The price of the NYMEX futures contract for July delivery at the Henry Hub settled at $7.941 per MMBtu on Wednesday, May 30, equaling its level last Wednesday, May 23. Prices for delivery in the ensuing months through the end of the upcoming heating season (March 2008) decreased between 1.5 and 4.3 cents per MMBtu. Overall, the 12-month futures strip (July 2007 through June 2008) traded at a premium of about $1.08 per MMBtu relative to the Henry Hub spot price, averaging $8.79 per MMBtu as of Wednesday, May 30, declining from a premium of $1.28 per MMBtu as of Wednesday, May 23. These relative pricing patterns reflected ample incentives for suppliers to inject natural gas into storage, increasing the spot price of gas relative to the 12-month futures strip. The contract for June delivery at the Henry Hub expired on Tuesday, May 29, at $7.591 per MMBtu, posting a decline of about 24 cents per MMBtu in its tenure as the near-month contract.  

  Recent Natural Gas Market Data  

Storage:

Working gas in storage totaled 2,053 Bcf as of Friday, May 25, which is about 21 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 May 25, stocks were 179 Bcf below the 2,232 Bcf in storage at this time last year, yet still exceeded the 5-year average by 355 Bcf. This marks the fifth consecutive week that storage levels increased relative to both last year's level and the 5-year average. On the week, net injections into working gas storage totaled 107 Bcf compared with the 5-year average injection of 86 Bcf and last year's net injection of 81 Bcf for the same report week.Moderate temperatures throughout the Lower 48 States likely contributed to the above-normal injections (see Temperature Maps). Both cooling and heating degree-days were significantly below normal levels on average in the Lower 48 States.  

 Other Market Trends:

First Quarter Financial Performance of Independent Energy Companies: According to a report released on May 30, total net income of 41 independent energy companies tracked by the Energy Information Administration (EIA) was $4,578 million during the first quarter of 2007, which is more than 39 percent higher than amounts reported for the first quarter of 2006. Independent energy companies typically are smaller than the major U.S. energy companies and do not have integrated production and refining operations. The report includes data for three types of companies:oil and gas producers, oil field companies, and refiners/marketers. Total revenue in the first quarter of 2007 increased 23 percent year-over-year to $32,337 million. The higher net incomes are partly attributed to the performance of oil field service companies and the refineries/marketers. Net income of U.S. oil field service companies increased by about 43 percent and revenues increased by almost 28 percent year-over-year. Income for independent refiners increased from $37 million during the first quarter in 2006 to $248 million in the first quarter in 2007. The increase in net income for refiners reflects an increase in U.S. gross refining margins of about 10 percent over the year-ago quarter.In contrast, oil and natural gas producers had declines in earnings compared with earnings in the first quarter of 2006. Net income of the oil and gas producers in the first quarter of 2007 declined by about 61 percent compared with that of the first quarter of 2006, while revenues rose by more than 2 percent. Both natural gas and crude oil prices declined by 15 percent and 3 percent, respectively, compared with levels in the first quarter of 2006. The worldwide rig count in the first quarter of 2007 was 3,247, which reflects a 5 percent increase over rigs in the first quarter of 2006. For the United States, the rig count grew 14 percent for the same period. This quarter marks the 16th consecutive quarter that the U.S. natural gas rig counts have increased over year-earlier counts.

 MMS Announces Preparations for 2007 Hurricane Season: On Wednesday, May 30, the Department of the Interior's Minerals Management Service (MMS) outlined several measures it has implemented in order to prepare for the 2007 hurricane season, which starts on June 1. Many of the measures resulted from an assessment conducted by several industry and government groups, including MMS, initiated after Hurricanes Katrina and Rita caused unprecedented damage to offshore production facilities in 2005. The assessment utilized new information collected during the 2005 hurricanes and considered the possible weather conditions that could occur with a major hurricane moving through the Gulf of Mexico. The measures include seven operational tools that MMS has prepared to clarify special engineering practices and reporting procedures used by offshore operators on all structure types. Examples include guidelines for moored drilling rig fitness requirements, guidelines for tie-downs on Outer Continental Shelf production platforms, a notice to lessees and operators on using MMS's permitting and reporting system (eWell), and clarification regarding MMS's platform verification program. Also in preparation for the hurricane season, MMS will activate its hurricane information Web site. The site will include broad overview information, historical hurricane information, and updated evacuation and production statistics in the event of a hurricane or tropical storm.  

Natural Gas Transportation Update:

• Southern California Gas Company declared a high linepack operational flow order (OFO) on Thursday, May 24, which lasted through gas day Monday, May 28. The pipeline planned to assess buy-back charges in accordance with its tariffs to shippers who delivered more than 110 percent of their actual gas usage into the system during the OFO period.
• ANR Pipeline Company announced on Friday, May 25, that it will continue to perform unplanned engine repairs at its Sandwich compressor station in Illinois in the Northern Fuel Segment (ML-7). Because of these repairs, ANR would accept only firm primary nominations through the Sandwich East and the Sandwich North segments. The pipeline anticipates that the operational restrictions will remain in place through June 1.
• Effective Saturday, May 26, until Tuesday, May 29, Mississippi River Transmission Corporation issued a system protection warning (SPW) as a result of high linepack on its system. During the SPW period, MRT did not schedule any volumes that resulted in a daily long position, nor did it accept any make-up of short positions.
• Gulf South Pipeline Company announced on Thursday, May 24, that it began performing unscheduled maintenance on Bistineau compressor station unit #5 in Louisiana, which is expected to last about 10 days. The pipeline added that although withdrawal capacity is not affected, injection capacity at Bistineau is reduced by 150,000 decatherms per day.
• El Paso Natural Gas Company announced on May 24 that the Williams C plant had developed an exhaust leak that needed corrective action. The pipeline repaired the leak by cycle 3 nomination for gas day Friday (May 25), lifting the 200 MMcf per day reduction. However, Williams B unit checks continued along with the reduction of 32 MMcf per day on the North Mainline.

Short-Term Energy Outlook