for week ending September 12, 2007 | Release date: September 13, 2007 | Previous weeks
Overview: Thursday, September 13, 2007 (next release
2:00 p.m. on September 20, 2007)
Natural gas spot and futures
prices generally increased this report week (Wednesday to Wednesday, September
6-13), as tropical storms threatened to disrupt supplies and pipeline
explosions in Mexico stirred concerns of supply security. Hurricane Humberto is
still active near the Texas-Louisiana border at the time of this writing, and
Tropical Depression 8 in the South Atlantic is apparently moving toward Puerto
Rico and the general direction of the Gulf of Mexico (where these storms might cause
energy-producing platforms to be evacuated and supplies to be shut in). However,
companies have not yet announced significant shut-in production or damage from
the weather. On the week the Henry Hub spot price increased 32 cents per MMBtu
to $6.13. At the New York Mercantile Exchange (NYMEX), prices for futures
contracts also registered significant increases. The futures contract for October
delivery rose 63.3 cents per MMBtu on the week to $6.438. Working gas in
storage as of Friday, September 7, was 3,069 Bcf, which is 9.3 percent above
the 5-year (2002-2006) average. The spot price for West Texas Intermediate
(WTI) crude oil recorded yet another record high, increasing $4.11 per barrel on
the week to $79.85, or $13.77 per MMBtu.
Spot
natural gas prices moved higher in four of five trading sessions this week as
anxiety increased over possible supply disruptions from tropical storms affecting
the Gulf of Mexico production region. As of this writing, shut-in production or
damage to infrastructure from Hurricane Humberto, if any, has not been reported.
However, numerous companies said they expected little or no disruption of
operations from the storm. Nonetheless, attention is shifting to a growing
storm (now simply referred to as Tropical Depression 8) nearing the Caribbean
but still many days away from landfall. Outside of storm-related developments, more
moderate temperatures replaced summer-like conditions in much of the East this
past weekend, likely reducing weather-related demand. On the week, the spot price
at the Henry Hub increased by 32 cents per MMBtu, or close to 6 percent, to $6.13.
Other spot prices along the Gulf Coast and in East Texas registered similar
gains between 19 and 31 cents per MMBtu, although prices at markets associated
with delivery into Florida (where natural gas is primarily used as a fuel for
power generation to meet air-conditioning needs) dropped along with the
occurrence of more moderate temperatures in the State. In fact, the price for
spot deliveries in Florida was $6.74 per MMBtu yesterday, which was lower on
the week by $1.23 (but still the highest in the country). The average price in
the Northeast yesterday was 23 cents higher than the previous Wednesday at
$6.44 per MMBtu. The price of gas trading at Niagara, New York, off Tennessee
Gas Pipeline moved up $0.35 per MMBtu, the largest increase in the region, to
an average of $6.34. Precipitous price
declines again characterized spot trading at Rockies market locations. While
many producers have sold supplies on forward markets and as a result are not
affected directly by current spot trading activity, the lack of available
pipeline transportation out of theregion has created extremely volatile pricing on the spot market (with
declines in prices more often than not offsetting any increases this week). The
average price in the Rockies region fell $0.20 per MMBtu to $2.52. However,
some market centers in the Rockies recorded decreases exceeding 50 cents per
MMBtu, and average prices below $1 have become common at many locations this
month.
Concerns over possible supply disruptions from
tropical storms also boosted prices at the NYMEX, for the moment easily
subsuming the perception of ample underground storage supplies (which for the
first time since 1990 exceeded 3,000 Bcf by the end of August) for the upcoming
winter. The price of the near-month contract (for October delivery) increased
63.3 cents per MMBtu, or 10.9 percent, during the report week, settling at
$6.438 yesterday. Most of the gain on the week came yesterday (September 12),
with the near-term contract spiking more than 50 cents per MMBtu as Hurricane
Humberto formed on the Gulf Coast. A significant gain of 39 cents per MMBtu in
the price of the near-term contract also occurred on Monday, following news of
a series of pipeline explosions in the eastern Mexican state of Veracruz.
Terrorists have claimed responsibility for the event. Although traders in the
United States responded to the news with much trepidation over supply security
and increased demand for U.S. exports to Mexico, the long-term implications of
these outages for U.S. markets would appear limited with U.S. pipeline markets
not currently integrated well with the Veracruz pipeline grid. The October
contract price of $6.438 per MMBtu is the highest settlement for the October
contract since mid-August. Priced at this level, the October 2007 contract is
trading $2.24 higher than the settlement price of the October 2006 contract,
the price of which fell significantly as the possibility of supply disruptions
from hurricanes diminished through the month of September that year. The same
could occur this year, but recent storm activity in the Gulf and the Atlantic
has the market still concerned. The October 2007 contract also is priced $1.01 per
MMBtu higher than the expiration price of the September 2007 contract. The 12-month strip, which is the average price for futures
contracts over the next 12 months, closed yesterday at $7.76 per MMBtu, an
increase of 35 cents since last Wednesday. Currently, the highest-priced contract in the 12-month strip is the
February 2007 contract, which closed yesterday at $8.297 per MMBtu, a premium
of $2.167 to yesterday's Henry Hub price.
Recent
Natural Gas Market Data
Working
gas in underground storage as of September 7 was 3,069 Bcf, which is 9.3
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 64
Bcf, which was significantly lower than both the 5-year average net injection
of 88 Bcf and last year's net injection of 103 Bcf. As a result, the difference
between current inventory levels and the 5-year average decreased to 260 Bcf,
and current inventories match last year's level. The latest cooling degree-day
(CDD) statistics published by the National Weather Service for the period
roughly coinciding with the storage week indicate that weather-related gas
demand likely was higher than normal in all Census regions except the West
South Central and New England regions. For the United States as a whole, CDDs
totaled 29 percent more than normal and 53 percent more than the corresponding
week last year. The large temperature deviations above both last year's level
and normal suggest demand for natural gas as a fuel for power generation to
meet air-conditioning needs would have been larger this year compared with last
year's or normal consumption levels. (see Temperature Maps)
Other Market
Trends:
EIA Releases September 2007 Short-Term Energy Outlook: In its latest Short-Term
Energy Outlook (STEO),
released September 11, the Energy Information Administration (EIA) projects
that the Henry Hub spot price will average about $7.31 per thousand cubic feet
(Mcf) in 2007 and $8.07 per Mcf in 2008. After surpassing 3.0 trillion cubic feet (Tcf) at the end of August,
working natural gas in storage is projected to exceed 3.4 Tcf at the end of
October. Total natural gas consumption
is expected to increase by 4.5 percent in 2007 because of increased use in the
residential, commercial, and electric power sectors. While natural gas production in the Federal
Gulf of Mexico is expected to decrease in 2007 by 4.3 percent, production in
the Lower-48 onshore region is expected to increase by 1.7 percent because of
growth during the second quarter. Liquefied
natural gas (LNG) imports in 2007 are expected to increase by about 48 percent
above the volume imported in 2006. Total LNG imports in 2007 and 2008 are
projected to reach 860 and 1,020 billion cubic feet, respectively.
Natural Gas Transportation
Update: