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Overview: Thursday, July 19, 2007 (next release 2:00
p.m. on July 26, 2007) Since
Wednesday, July 11, natural gas spot prices decreased at virtually all markets
in the Lower 48 States. Prices at the Henry
Hub declined 41 cents per MMBtu, or 6 percent, since Wednesday, July 11, to
$6.24 per MMBtu. At the NYMEX, the
futures contract for August delivery at the Henry Hub settled yesterday (July
18) at $6.528 per MMBtu, falling 7 cents per MMBtu, or 1 percent since last
Wednesday, July 11. Natural gas in
storage was 2,692 Bcf as of July 13, which is 15.7 percent above the 5-year
average (2002-2006). The spot price for
West Texas Intermediate (WTI) crude oil gained $2.45 per barrel on the week
(Wednesday-Wednesday) to $75.03 per barrel or $12.94 per MMBtu. Natural
gas prices fell at virtually all market locations since last Wednesday, July
11, with declines of 25 to 50 cents per MMBtu or about 4 to 12 percent. Moderating temperatures in most areas of the
Lower 48 States likely accounted for the widespread declines, as cooler
temperatures mitigated cooling demand for natural gas. On a regional basis, price declines averaged
between 18 and 58 cents per MMBtu, or 3 and 13 percent, since last Wednesday,
July 11. The largest price decreases
since last Wednesday, July 11, occurred principally in the Rocky Mountain
region, where prices fell by more than 57 cents per MMBtu, or 13 percent on
average. By far, the smallest decreases
occurred in the Arizona/Nevada and Florida regions, where prices fell by 18 and
24 cents per MMBtu on average, respectively, with the Florida citygate posting
the highest price in the Lower 48 States at $8.00 per MMBtu. Elsewhere, average price decreases by region
ranged between 30 and 43 cents per MMBtu.
Despite these declines and lower electric generation demand relative to
last year, prices generally exceeded levels reported last year at this time,
with prices at the Henry Hub $0.22 per MMBtu or 4 percent above last year’s
level. The principal exception to the
year-over-year price increases occurred in the Rocky Mountain region, where
prices at selected markets were between $1.87 and $2.28 per MMBtu or about 35
and 43 percent below last year’s level. At the NYMEX, prices for the futures contracts for delivery in the next 12 months were mixed, with the 12-month futures strip (August 2007 through July 2008) climbing about 5 cents per MMBtu, or about less than 1 percent, since last Wednesday, July 11. The prices of the NYMEX futures contract for delivery at the Henry Hub during the remaining months in the 2007 refill season (August through October 2007) fell about 9 cents per MMBtu, or 1 percent, since last Wednesday, July 11, while the other months in the 12-month futures strip generally increased between 7 and 15 cents per MMBtu, or about 1 to 2 percent. Overall, the 12-month futures strip (August 2007 through July 2008) traded at a premium of about $1.60 per MMBtu relative to the Henry Hub spot price, averaging $7.84 per MMBtu as of Wednesday, July 18. These relative pricing patterns reflected ample incentives for suppliers to inject natural gas into storage. Recent Natural Gas Market Data Working
gas in storage totaled 2,692 Bcf as of Friday, July
13, which is 16 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 July 13, stocks were
63 Bcf below the 2,755 Bcf in storage at this time last year, yet still
exceeded the 5-year average by 365 Bcf. This marks the 12th consecutive
week that storage levels increased relative to last year’s level. On the week,
net injections into working gas storage totaled 65 Bcf compared with the 5-year
average injection of 74 Bcf and last year’s net injection of 64 Bcf for the
same report week. Warmer-than-normal
temperatures throughout the Lower 48 States likely contributed to the
below-normal injections (see Temperature Maps).
Cooling degree-days were 14 percent above normal levels on average in the Lower
48 States, exceeding normal levels by more than 24 percent in the New England,
Middle Atlantic, East North Central, Mountain, and Pacific Census Divisions. Other Market
Trends: GAO Releases Report on Energy
Derivatives Trading and CFTC Oversight:
According to the July 12, 2007, Government Accountability Office (GAO) report, inflation-adjusted
energy prices in both futures and physical markets increased significantly for
crude oil, unleaded gasoline, heating oil, and natural gas between 2002 and
2006, with the crude oil, unleaded gasoline, and heating oil prices more than
tripling during this period. In its report, GAO analyzed trends and patterns in
the futures and physical energy markets and the effect of these trends on
energy prices. Rising energy prices have been attributed to a variety of
factors, and recent trends in the futures and physical markets highlight the
changes that have occurred in both markets between 2002 and 2006. Volatility in
energy futures prices generally remained above historic averages for most of
the period but declined during 2006 to levels near or at historical
averages. The number of non-commercial
traders, including hedge funds, in the futures markets has increased.
Consequently, the volume of energy futures contracts traded and the volume of
energy derivatives traded outside traditional futures exchanges has grown.
While the changes in the futures markets for energy commodities were occurring,
tight supply and rising demand in the physical markets placed upward pressure
on prices. The report also discusses the Commodity Futures Trading Commission’s
(CFTC) regulatory and enforcement authority over derivatives markets. CFTC’s
primary focus is on the operations of traditional futures exchanges. With the
rise of futures trading on non-traditional exchanges, which are exempt from
CFTC oversight, such as over-the-counter (OTC) markets, questions have been
raised as to the CFTC authority to protect investors from fraudulent,
manipulative, and abusive practices. According to the report, CFTC generally
believes that it has sufficient authority over OTC derivatives and exempt
energy markets. NPC Releases Study on Global Crude Oil
and Natural Gas: Responding to
Secretary Bodman’s October 2005 request, the National Petroleum Council (NPC)
released a study on July 18, 2007, on global crude oil and natural gas resources.
According to the study, traditional oil and gas resources will likely be
insufficient to meet the projected 50 to 60 percent growth in global demand
over the next 25 years. Specifically in the United States, which once was the
largest oil producer in the world, and is now ranked behind Russia and Saudi
Arabia, domestic oil production has been decreasing over the past 35 years,
while natural gas production has been more stable. Still, with the demand for
both resources increasing, the United States has been relying on imports to
bridge the gap. Given the inability to meet the growing demand because of the
lack of access to domestic reserves, imported liquefied natural gas (LNG) is
projected to grow from 2.5 percent of U.S. gas supply to between 6 and 18
percent by 2030. The NPC further states that North American gas production is
expected to decline and then plateau as unconventional resources, such as
coalbed methane, supplement conventional sources. Future limits on carbon
emissions could necessitate carbon-constraint policies within an overall energy
strategy. The NPC made several recommendations based on its findings, including
expansion and diversification of production from clean coal, nuclear, biomass,
and other renewable sources, while moderating the decline of conventional gas
and oil production by creating better access to reserves. Furthermore, the NPC
recommended that energy policy be integrated into trade, economic,
environmental, and foreign policies and that science and engineering capabilities
be enhanced to create long-term opportunities for energy-related research and
development. The NPC is a federally-chartered and privately-funded advisory
committee. Its purpose is to represent the views of the oil and natural gas
industries in advising, informing, and making recommendations to the Secretary
of Energy. Natural Gas Transportation Update:
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