for week ending July 25, 2007 | Release date: July 26, 2007 | Previous weeks
Overview: Thursday, July 26, 2007 (next release 2:00
p.m. on August 2, 2007)
Since
Wednesday, July 18, natural gas spot prices have decreased at all market
locations in the Lower 48 States, with the exception of a few points in the
Rockies. For the week (Wednesday-Wednesday), prices at the Henry Hub decreased
by about 11 percent to $5.57 per MMBtu. Yesterday (July 25), the price of the
NYMEX futures contract for August delivery at the Henry Hub settled at $5.925
per MMBtu in its third to last day of trading, decreasing by a net of $0.60 or
about 9 percent since last Wednesday (July 18). The August 2007 contract
reversed a 3-day downward price trend in the final day of the report week,
increasing 6.2 cents per MMBtu on Wednesday, July 25. Natural gas in storage was
2,763 Bcf as of July 20, which is 16.1 percent above the 5-year average.
The spot price for West Texas Intermediate (WTI) crude oil rose $0.71 per
barrel or about 1 percent on the week to $75.74 per barrel or $13.06 per MMBtu.
The crude oil price reached $75.90 per barrel on July 19, which was the highest
crude oil price since August 9, 2006, when the WTI traded at $76.28 per barrel.
Furthermore, it was $1.15 per barrel lower than the all-time high of $77.05 per
barrel recorded on August 7, 2006.
Mild
summer weather in the densely populated Northeast and Midwest and no supply
interruptions led to natural gas spot price decreases at virtually all market
locations in the Lower 48 States during the report week. The Edison Electric
Institute (EEI) reported that U.S. electricity demand for the week ending July
21 decreased by 1 percent from the level of the prior week and was 8.7 percent less
than during the same week last year. According to EEI, domestic utilities
delivered 87, 961 gigawatt hours (GWh) during the week ended July 21, which was
significantly lower than the record-setting deliveries of 96,314 GWh for the
week ended June 22, 2006, that led to an unusual mid-summer net withdrawal of
gas from storage of 7 Bcf for the week roughly coinciding with the EEI report.
Thus, the continuing lack of significant cooling demand mitigated the increase
in crude oil prices this week, which reached levels close to historical highs. Price
decreases on the week varied widely, ranging between 33 cents and $1.93 per
MMBtu. Prices at the Henry Hub decreased 67 cents or about 11 percent to $5.57
per MMBtu since last Wednesday, while prices at other market locations in
Louisiana decreased by an average of 77 cents per MMBtu. Major consuming areas
of the Northeast and the Midwest recorded price decreases on the week of 76 and
60 cents per MMBtu, respectively, reaching regional averages of $6.02 and $5.68
per MMBtu. The regional average price in California decreased by 43 cents per
MMBtu to $5.53 per MMBtu. Prices at several locations in the Rocky Mountain
region increased on the week despite pipeline maintenance projects that constricted
some of the capacity available to move the natural gas to consuming areas. The price
increases in the Rockies ranged between 24 and 63 cents per MMBtu, or 7 and 21
percent. While the regional average in the Rockies was $4.25 per MMBtu as of
yesterday, the lowest in the Lower 48 States, the basis differential with other
trading regions has decreased significantly over the past few weeks. Currently,
the Northeast is the highest-priced regional average at $6.02 per MMBtu, or
$1.77 per MMBtu higher than the Rockies' average - significantly lower than the
roughly $4 differential recorded in mid-June.
Recent Natural Gas Market Data
Working
gas in storage totaled 2,763 Bcf as of Friday, July 20, according to EIA's Weekly
Natural Gas Storage Report. Working gas inventories are roughly 16 percent
above the 5-year average for the report week and slightly higher (0.2 percent)
than last year's level of 2,757 Bcf (see Storage Figure).
This week's storage report indicates that current inventories have surpassed
last year's storage level for the first time since January 27, 2007. The
net addition of 71 Bcf, which includes a reclassification of 7 Bcf from base to
working gas, sharply contrasts with last year's injection of 2 Bcf and even
without the reclassification volume would be about 23 percent higher than the
5-year average injection of 52 Bcf. This week's sizeable net injection was
driven largely by a lack of space cooling demand across the Lower 48 States.
During the week ended July 19, the National Weather Service reported
temperatures for the entire Lower 48 that were 4 percent cooler than normal, as
measured by the cooling degree-days (CDDs) (see Temperature
Maps). Temperatures in six out of nine Census Divisions were
between 2 and 30 percent cooler than normal. Compared with the comparable
report week last year, temperatures were more than 30 percent cooler, with each
Census Division recording CDDs lower than last year's. With about 14 weeks left
in the traditional heating season, should net injections occur at a rate equal
to the 5-year minima, total inventories at the beginning of the heating season
will reach roughly 3,400 Bcf.This
volume is less than 2 percent below last year's level of 3,452 Bcf, which is
the highest level since 1990.
Other Market
Trends:
New Use for Stranded Natural Gas: A U.S. Department of Energy (DOE) funded
project is turning "stranded" natural gas at marginal or low-production oil
fields into fuel for distributed electric power. The National Energy Technology
Laboratory (NETL) announced on July 24 that the previously thought uneconomic
stranded gas could be used to boost domestic oil production by about 28 million
barrels per year within the next 10 years. Researchers at NETL developed a
method of using the stranded gas as fuel
for distributed generation power units at marginal well sites in
California.Currently, four field
demonstrations are being conducted with fuels of varying energy contents and
quality. Three of the demonstrations have shown success so far: Demonstrations
using high-Btu gas, medium-Btu gas, and "harsh" gas have been tested
and have been successful. The fourth demonstration using ultralow-Btu gas,
which has as little as 15 Btu per standard cubic foot, did not prove
successful. Stranded gas is natural gas that is uneconomic to produce for one
or more reasons.Normally, there are
three ways to deal with stranded natural gas: (1) venting or flaring the gas,
but this contributes to air pollution without any beneficial offsets from the
gas; (2) using electrical energy to re-inject the gas, which incurs significant
extra costs; and (3) shutting down oil production in marginal fields, which
leaves valuable oil in the ground.
MMS Issues Final Notice for Western Gulf
Lease Sale 204: The Minerals Management Service (MMS) issued
a final notice for Lease Sale 204 on July 20, 2007. The final notice includes
several new provisions for the sale, including new administrative planning area
boundaries, an increased deepwater royalty rate, terms for extensions of deep
(below 25,000 feet true vertical depth subsea) drilling leases, and changes to
deepwater royalty suspension prices. According to the notice, MMS will open and
publicly announce bids received on August 22, 2007, which is its first lease
sale of the 2007-2012 Outer Continental Shelf (OCS) Oil and Natural Gas leasing
program. MMS estimates that Sale 204 could result in the recovery of 242 to 423
millions barrels of oil and 1.64 to 2.64 trillion cubic feet of natural
gas. The sale includes 3,338 unleased
blocks in the Western Gulf of Mexico OCS covering a total of approximately 18
million acres of land in Federal waters offshore Texas, with water depths of
greater than 4 meters (13 feet) to about 3,425 meters (11,237 feet). Proposed lease areas range from 9 to 250
miles offshore.
Natural Gas Transportation Update: