Overview:  Thursday, August 16, 2007 (next release 2:00 p.m. on August 23, 2007)

Since Wednesday, August 8, natural gas spot prices increased at virtually all markets in the Lower 48 States outside the Rocky Mountain region.  Prices at the Henry Hub climbed $1.04 per MMBtu, or nearly 17 percent, since Wednesday, August 8, to $7.30 per MMBtu.  At the NYMEX, the futures contract for September delivery at the Henry Hub settled yesterday (August 15) at $6.864 per MMBtu, rising 64 cents per MMBtu or 10 percent since last Wednesday, August 8.  Natural gas in storage was 2,903 Bcf as of August 10, which is 15 percent above the 5-year average (2002-2006).  The spot price for West Texas Intermediate (WTI) crude oil gained $1.13 per barrel on the week (Wednesday-Wednesday) to $73.36 per barrel or $12.65 per MMBtu.

 

 

Prices:

Natural gas prices increased at virtually all market locations outside the Rocky Mountain region since last Wednesday, August 8, with some price spikes of $0.72 to $1.61 cents per MMBtu or about 10 to 21 percent.  Scorching temperatures in large areas of the Lower 48 States and tropical storm activity in the Caribbean likely accounted for the widespread increases, as hot temperatures strengthened cooling demand for natural gas, and storm activity threatened production in the Gulf of Mexico.  On a regional basis, price hikes outside the Rocky Mountain region averaged between $0.82 and $1.03 per MMBtu, or 12 and 18 percent, since last Wednesday, August 8.  The largest price increases since last Wednesday occurred principally in the Texas and Louisiana regions, where prices climbed by more than $1 per MMBtu, or more than 16 percent on average.  By far, the smallest increases occurred in the Rocky Mountain region, where prices increased 24 cents per MMBtu on average with selected locations in the region posting declines of 42 to 63 cents per MMBtu.  Hot temperatures prevailed throughout the South, Southwest, and parts of the Midcontinent regions since Friday, August 10, and intensified cooling demand for natural gas.  Tropical storm activity in the Atlantic contributed to market uncertainty about natural gas production, further exacerbating the price spikes.  The formation of tropical depression 5, which was upgraded to Tropical Storm Erin on Wednesday, August 15, in relatively close proximity to the production areas of the Gulf of Mexico led to evacuations of some personnel from selected platforms, although no significant volumes of natural gas were shut in as of Wednesday, August 15.  As of Thursday, August 16, Tropical Storm Erin was about 200 miles south of Galveston, Texas.  Concerns about Tropical Storm Dean, which was about 900 miles east of the Lesser Antilles as of Thursday, August 16, and poses a more remote, but potentially more severe threat to production in the Gulf of Mexico, also contributed to the price increases since last Wednesday, August 8.   

 

 

 

At the NYMEX, prices for the futures contracts for delivery in the next 12 months increased, with the 12-month futures strip (September 2007 through August 2008) climbing about 30 cents per MMBtu, or about 4 percent, since last Wednesday, August 8. The prices of the NYMEX futures contract for delivery at the Henry Hub during the remaining months in the 2007 refill season (September through October 2007) increased 62 cents per MMBtu, or 10 percent on average, since last Wednesday, August 8; the other months in the 12-month futures strip increased between 14 and 46 cents per MMBtu, with each month’s contract posting smaller increases in each successive month.  Overall, the 12-month futures strip (August 2007 through July 2008) traded at a premium of about 80 cents per MMBtu relative to the Henry Hub spot price, averaging $8.10 per MMBtu as of Wednesday, August 15.  

 

Recent Natural Gas Market Data

 

Storage:

Working gas in storage totaled 2,903 Bcf as of Friday, August 10, which is 15 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 August 10, stocks were 108 Bcf above the 2,795 Bcf in storage at this time last year, and exceeded the 5-year average by 371 Bcf.  On the week, net injections into working gas storage totaled 21 Bcf compared with the 5-year average injection of 57 Bcf and last year’s net injection of 30 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 27 percent above normal levels in the Lower 48 States, exceeding normal levels by more than 28 percent in the New England, Middle Atlantic, East North Central, West North Central, South Atlantic, and East South Central Census Divisions.

 

 

Other Market Trends:

EIA Releases New Report on the Impact of Higher Natural Gas Prices:  On August 15, the Energy Information Administration (EIA) released a report entitled Impact of Higher Natural Gas Prices on Local Distribution Companies and Residential Customers, which examines some of the problems faced by local distribution companies (LDCs) and natural gas consumers as a result of increasing heating bills in recent years. According to the report, the number of LDC natural gas customers in arrears and the dollar value of the overdue accounts have been rising since at least 2001. The average percentage of past-due accounts for LDCs increased from 16.5 percent in 2001 to 21 percent in 2006. At the same time, the average amount of past-due accounts rose 26.7 percent from $263 in 2001 to $334 in 2006. Related to these problems, more households are seeking assistance in paying their natural gas bills. The report examines various Federal, State, and utility assistance programs, such as the Low Income Home Energy Assistance Program, which experienced an increase in eligible households of 18 percent between 1999 and 2004, reaching a total of over 35 million households. The report also examines innovative rate mechanisms used by LDCs to mitigate the impact of high gas price-induced uncollectibles and lower throughput, and discusses the use of physical and financial hedging by LDCs as a risk-mitigating strategy.

 

Natural Gas Transportation Update:

●        Southern Natural Gas Company announced that it had completed damage assessment on its 26-inch diameter pipeline downstream of the Gate 6 aggregation platform offshore Louisiana. The damage resulted from a rupture that occurred on Friday, August 3, on one of the two companion 20-inch lines. As of Monday, August 13, the pipeline company installed an interim solution at Gate 6 to allow Main Pass area volumes to flow into the 26-inch line. Beginning with nominations for day Tuesday, and until further notice, Southern is allowing about 650,000 decatherm (Dth) per day to flow into the 26-inch line.

●        Northern Natural Gas Company declared a force majeure on the Matagorda Offshore Pipeline System in Texas on August 10 after it had discovered a leak near the Matagorda Island 686 C platform. As a result, all receipt and delivery points were shut in until further notice.  The pipeline also reported on August 8 that it was experiencing high levels of water in the gas stream and that water levels at the Clifton compressor station in Kansas were exceeding the tariff limit of 6 pounds per million cubic feet. The pipeline indicated that it is not be able to accept gas at Beaver County #2 and Clark County #2 receipt points. 

●        Northwest Pipeline Corporation declared a deficiency period staring Thursday, August 16, as a result of primary firm nomination requests through the Muddy Creek compressor station exceeding the available capacity of 160,000 Dth per day. The pipeline reported that based on nominations of 513,000 Dth per day, the daily deficiency volume is 353,000 Dth. The deficiency period is expected to last for a maximum of 72 hours.

●        Kern River Gas Transmission Company reported completing the damaged Goodsprings compressor bundle, bringing the unit back to service as of August 14. The operational capacity at the Veyo compressor station was increased to 2,005,000 Dth per day, while the capacity at Goodsprings was returned to the pre-outage levels.

●        Sea Robin Pipeline Company announced that it had to shut in the Sea Robin gas processing plant for a period of 24 hours on August 15, as a result of mandated Louisiana State highway construction work in the Lafayette area. The plant continued to dehydrate the gas during the outage. All producers behind the plant had to reduce their nominations to zero for August 15.

 

 Short-Term Energy Outlook