Natural Gas

Overview: Thursday, August 30, 2007 (next release 2:00 p.m. on September 6, 2007)

Since Wednesday, August 22, natural gas spot prices decreased at most markets in the Lower 48 States outside the Rocky Mountain region. Prices at the Henry Hub fell 20 cents per MMBtu, or 3 percent, since Wednesday, August 22, to $5.64 per MMBtu. At the NYMEX, the futures contract for September delivery at the Henry Hub expired yesterday (August 29) at $5.430 per MMBtu, falling 15 cents or 3 percent since last Wednesday, August 22. Natural gas in storage was 2,969 Bcf as of August 24, which is 12 percent above the 5-year average (2002-2006). The spot price for West Texas Intermediate (WTI) crude oil gained $4.22 per barrel on the week (Wednesday-Wednesday) to $73.52 per barrel or $12.68 per MMBtu.

Prices:

Natural gas prices decreased at most market locations since last Wednesday, August 22, as prices exhibited a general pattern of decline, falling in each day of trading through Monday, August 27, before rallying on Tuesday and Wednesday (August 28 - 29), which partially offset the earlier declines. Moderating temperatures and soft weekend demand for natural gas likely contributed to the pattern of declining prices, while expectations of a new warm front and injection demand for natural gas likely accounted for the subsequent midweek recovery. On a regional basis, price declines outside the Florida and Rocky Mountain regions averaged between 12 and 26 cents per MMBtu, or 2 and 4 percent, since last Wednesday, August 22. Prices in the Florida and Rocky Mountain regions posted the largest declines on a regional basis, falling 91 and 83 cents per MMBtu, respectively. Furthermore, by far the largest price declines for individual markets since last Wednesday were posted at selected locations in the Rocky Mountain region with declines of as much as $1.62 per MMBtu. Yet this region also included markets that reported price increases since last Wednesday. Continuing transportation constraints in the Rocky Mountain region doubtlessly contributed to the unusual pricing patterns in the region.The only other markets in the Lower 48 States reporting price increases since last Wednesday were in the Northeast region, where some selected markets, including the Algonquin citygate, eked out gains of less than a nickel per MMBtu. As of Wednesday, August 29, spot prices were about 5 to 10 percent below last year's level at most market locations, with the price at the Henry Hub 60 cents per MMBtu or about 10 percent below last year's price.  

At the NYMEX, prices for the futures contracts for delivery in the next 12 months decreased, with the 12-month futures strip (September 2007 through August 2008) falling about 18 cents per MMBtu, or about 2.5 percent, since last Wednesday, August 22. The futures contract for September delivery expired yesterday (August 29) at $5.430 per MMBtu, declining $1.069 per MMBtu, or 16 percent, during its time as the next-month contract.This is the lowest expiry for a NYMEX natural gas futures contract since September 27, 2006, when the futures contract for October delivery at the Henry Hub expired at $4.201 per MMBtu. The prices of the NYMEX futures contract for delivery at the Henry Hub during the months of the upcoming 2007-2008 heating season (November 2007 through March 2008) decreased 21 cents per MMBtu, or 3 percent, on average, since last Wednesday. Overall, the 12-month futures strip (September 2007 through August 2008) traded at a premium of about $1.50 per MMBtu relative to the Henry Hub spot price, averaging $7.14 per MMBtu as of Wednesday, August 29.  

Recent Natural Gas Market Data

 Storage:

Working gas in storage totaled 2,969 Bcf as of Friday, August 24, which is 12 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 24, stocks were 71 Bcf above the 2,898 Bcf in storage at this time last year, and exceeded the 5-year average by 315 Bcf. On the week, net injections into working gas storage totaled 43 Bcf compared with the 5-year average injection of 61 Bcf and last year's net injection of 49 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 in the Lower 48 States, exceeding normal levels in all Census Divisions outside the New England and Middle Atlantic regions, where cooling degree-days were significantly below normal levels.Cooling degree-days exceeded normal levels by more than 21 percent in the West North Central, South Atlantic, East South Central, Mountain, and Pacific Census Divisions.  

Other Market Trends:

MMS Announces Results of Lease Sale 204: The Minerals Management Service (MMS) announced that the August 22 Western Gulf of Mexico Lease Sale 204 garnered nearly $290 million in high bids. The sale, which was held in New Orleans, received a total of 358 bids by 47 companies that submitted their offers for 282 tracts. Lease Sale 204 offered 3,338 tracts that included about 18 million acres offshore Texas, with total bids received for the sale amounting to $369 million. The largest dollar amount based on high bids submitted in the lease sale was bid by Statoil Gulf of Mexico LLC with $139 million for the 36 high bids it submitted. BP Exploration and Production Incorporated, however, submitted the greatest number of high bids (91), which totaled $31million. According to MMS, the high bid for each block will go through a strict evaluation process to ensure the public receives a fair market value before a lease is awarded.  

DOE Awards Funding for Nuclear Research Infrastructure: The U.S. Department of Energy provided $100,000 awards to 38 universities to enhance nuclear research and development under President Bush's Global Nuclear Energy Partnership (GNEP). The GNEP contains a provision that specifies that $3.8 million in funding be awarded under GNEP University Readiness, which would be used to upgrade laboratories, improve reactor facilities, purchase state-of-the-art equipment, provide increased faculty support, and further enhance nuclear-related curricula. GNEP is part of a President Bush's Advanced Energy Initiative and aims to close the nuclear fuel cycle by reducing proliferation risks, reducing waste, and further increasing energy security around the world. The GNEP University Readiness awards will enable the chosen universities to compete in future GNEP research and development solicitations.  

Natural Gas Transportation Update:

• Northwest Pipeline Company announced several projects that affect available capacity.Effective gas day August 28, and until September 10, maintenance south of the Muddy Creek compressor station, located in Wyoming, will reduce available capacity at the Muddy Creek station from 513,000 decatherms per day (Dth/d) to 160,000 Dth/d.Effective August 27 through 30, Northwest is performing a unit inspection at the Baker compressor station located in Oregon.Northwest declared a deficiency period because primary firm nominations requests through the Baker compressor station have exceeded the available capacity of 392,000 Dth/d.In addition, Northwest declared a deficiency period at the Plymouth North constraint point, located in Washington State effective August 28 through 30 because no capacity was available.
• Effective August 30, Northwest has informed all shippers that it is making available 200,000 Dth of Clay Basin park-service capacity. The pipeline anticipates that the capacity will not need to be made available to Northwest until March 31, 2008.
• ANR Pipeline Company announced that effective gas day August 29, and until further notice, it is restricting interruptible storage injections. Because of the company's pipeline's storage inventory, injection nominations under the deferred delivery system and market balancing service will not be accepted. Furthermore, the company is requiring interruptible rate schedule deferred delivery service (DDS) and market-balancing service (MBS) storage customers to reduce their remaining storage inventory volume to zero by October 31, 2007.
• Pacific Gas and Electric Company issued a systemwide Stage 2 low-inventory operational flow order (OFO) for Thursday, August 30. Penalties were set at $1 per Dth for exceeding a 5 percent tolerance level for negative daily imbalance.
• Gulf South Pipeline Company announced that it began an unscheduled maintenance on Wednesday, August 29, at the Goodrich Compressor Station, located in Texas. Maintenance was expected to last about 24 hours. The capacity through this station may be reduced by as much as 200 million cubic feet per day during this maintenance.

Short-Term Energy Outlook