Natural Gas

Overview: Thursday, June 7, 2007 (next release 2:00 p.m. on June 14, 2007)

Warm temperatures in most areas of the Lower 48 States and the associated space cooling demand during the report week (Wednesday, May 30 - Wednesday, June 6) led to increases in spot prices in most market locations, with the exception of the Rocky Mountain and Northeast trading regions, as well as a few scattered points in California, Arizona, and West Texas. The formation of the second tropical storm on the first day of the 2007 Atlantic hurricane season (June 1) appeared to have an immediate impact on the futures and spot prices. Since May 30, the Henry Hub spot price increased 12 cents per MMBtu, or 1.6 percent, to $7.83 per MMBtu. Similarly, trading of futures contracts at the New York Mercantile Exchange (NYMEX) this week resulted in gains between 14 and 17 cents per MMBtu for contracts for delivery through the end of the next heating season. Net injections reported in today's release of EIA's Weekly Natural Gas Storage Report brought natural gas storage supplies to 2,163 Bcf as of Friday, June 1, which is 20.4 percent above the 5-year average inventory for the report week. The spot price for West Texas Intermediate (WTI) crude oil increased $2.50 per barrel on the week to $65.97 per barrel, or $11.37 per MMBtu.  

 Prices:

Warmer temperatures and the associated space cooling demand, as well as the continued high level of natural gas injected into underground storage, led to an increase in spot prices across much of the Lower 48 States. For the week (Wednesday-Wednesday), prices at the Henry Hub increased 12 cents to $7.83 per MMBtu. Prices at other market locations in Louisiana as well as trading points in the production area along the Gulf Coast generally increased between 3 and 15 cents per MMBtu. While prices in the southern regions increased, prices in the Northeast decreased in response to the dampening cooling load. The average regional spot price in the Northeast decreased by 10 cents, although three trading locations in the region recorded slight weekly increases. Following the pattern of the past few months, spot prices in the Rocky Mountain region remain the lowest in the Lower 48 States, as they decreased by an average of 40 cents per MMBtu on the week. Furthermore, at the end of the June 4 trading day, six trading locations in that region recorded daily prices of less than $1 per MMBtu, the first time spot prices at any location dropped below $1 per MMBtu since September 24, 2002. Yesterday, however, the average regional price in the Rockies was $4.36 per MMBtu, significantly lower than the average regional price range between $7.11 and $8.37 in other trading regions.  

 NYMEX futures prices increased this week, recording net weekly increases for contracts through the end of the 2008 injection season. The price increases reflected an uncertainty in the market about conditions in the coming months, as awareness of the possibility of an active hurricane season became stronger with the formation of the second tropical storm on the first day of the current Atlantic hurricane season. The near-month contract (for July delivery) increased 14 cents on the week, settling yesterday at $8.080 per MMBtu, remaining consistently over $8 per MMBtu since Monday, June 4. The 24-cent and higher increases during the June 4 trading were a clear response to Tropical Storm Barry in the Gulf of Mexico. While it became evident that this particular storm posed no danger to the production areas in the Gulf, the storm activity thus far along with the forecast of a very active hurricane season (see Other Market Trends) resulted in significant upward pressure on futures prices. Similar to the July contract, the August 2007 contract also increased on the week by 16 cents, to a settlement price of $8.219 per MMBtu yesterday (June 6). The remaining contracts in the 12-month strip, which is the average price of futures contracts for delivery over the next 12 months, increased between 13 and 17 cents per MMBtu. Currently, all futures contracts in the 12-month strip are trading above $8 per MMBtu, with the highest priced contracts (January and February 2008 contracts) trading as of yesterday at $10.091 and 10.086 per MMBtu, respectively.  

  Recent Natural Gas Market Data  

  Storage:

Working gas in underground storage was 2,163 Bcf as of June 1, which is 20.4 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 implied net injection for the week was 110 Bcf, which is more than 11 percent higher than the 5-year average net injection of 99 Bcf and about 43 percent higher than last year's net injection of 77 Bcf. As a result, the difference between current inventory levels and the 5-year average increased to 366 Bcf from the previous week's 355 Bcf. The working gas in storage at the end of May was the second largest volume since 1991, exceeded only by the record volume of last year. The latest cooling degree-day (CDD) statistics published by the National Weather Service for the period roughly coinciding with the week covered by this storage report suggest that there was some weather-related gas demand, albeit significantly smaller relative to the peak periods of summer (see Temperature Maps). For the Lower 48 States as a whole, CDDs numbered 15 percent above normal, with some Census Divisions recording CDDs significantly below normal. However, CDDs for the Lower 48 States were over 28 percent lower than for the same week last year.  

 Other Market Trends:

Active 2007 Hurricane Season Predicted:Colorado State University (CSU) released a report on Thursday, May 31, indicating a very active hurricane season. According to the forecast, this year's hurricane season is expected to be more active than normal, with a 74 percent chance of a major hurricane making landfall on the U.S. coastline. CSU experts are predicting 17 named storms in the Atlantic region this year. Out of the 17 storms, CSU predicts that 9 of the storms will turn into hurricanes. Also, during this hurricane season, five of the hurricanes are expected to turn into major hurricanes with winds of 111 miles per hour or greater. The hurricane season began on June 1 and will last until November 31.According to CSU, factors contributing to the greater number and intensity of storms include El Niño Southern Oscillation (ENSO) conditions on the cool side which will add to the likelihood of major storm activity in the Atlantic.Should significant El Niño conditions develop during the summer or fall, as was the case during the 2006 Atlantic Hurricane Season, they may decrease Atlantic hurricane activity as a result of increasing vertical wind shear across the area where Atlantic tropical cyclones develop.

 EIA Releases Report on the U.S. Natural Gas Pipeline Network:  On June 1, the Energy Information Administration (EIA) released a web-based informational product titled About U.S. Natural Gas Pipelines, which provides an overview of how the natural gas pipeline network operates, as well as how individual natural gas pipeline systems fit into the network.  The report mostly focuses on transportation of natural gas over the interstate and intrastate pipeline systems.  The U.S. natural gas pipeline network is a highly integrated transmission and distribution grid that can transport natural gas to and from nearly any location in the Lower 48 States. The natural gas pipeline grid comprises more than 210 natural gas pipeline systems representing nearly 300,000 miles of interstate and intrastate transmission pipelines.   Aspects of pipeline system design, development, and expansion are covered in the product. 

 Natural Gas Transportation Update:

• Pacific Gas and Electric Company imposed a systemwide Stage 2 high-inventory operational flow order (OFO) from Friday, June 1, through Sunday, June 3, and again on Wednesday, June 6, on the California Gas Transmission system. There was a penalty of $1 per decatherm (Dth) for exceeding a 16 percent tolerance on positive daily imbalances on Monday. The tolerance level was changed to 11 percent on Saturday, 14 percent on Sunday, and 8 percent on Wednesday.
• Southern California Gas Company declared a high-linepack OFO on Saturday and Sunday, June 2 and 3.Buy-back charges were assessed for all customers who delivered more than 110 percent of their actual natural gas usage on the OFO days.
• Responding to forecasts of high temperatures, Florida Gas Transmission Company issued an overage alert day (OAD) for market area customers for Monday, June 4. The OAD carried a 25 percent tolerance for negative daily imbalances.
• Northern Natural Gas Company declared a force majeure after an unplanned repair issue at the Spearman Compressor Station in Ochiltree County, Texas, on Friday, June 1. As a result, capacity on the Spearman Cargray System will be limited to 60,000 MMBtu per day until June 9.
• Gulf South Pipeline Company began unscheduled maintenance on Tuesday, June 5, on the Marksville Compressor Station in central Louisiana.The maintenance, which is expected to last for 4 days, could reduce capacity through the station by as much as 125,000 Dth per day.

Short-Term Energy Outlook