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Overview (Wednesday, December 26, 2007 to Thursday, January 3, 2008)
Released: January 4, 2008
Next release: January 10, 2008
<![if !supportLists]>· <![endif]>Natural gas spot and futures prices increased this report week (Wednesday to Thursday, December 26, 2007, to January 3, 2008), as frigid temperatures in much of the country increased demand for space heating. During the report week, the Henry Hub spot price increased $0.90 per million Btu (MMBtu) to $7.84.
<![if !supportLists]>· <![endif]>At the New York Mercantile Exchange (NYMEX), prices for futures contracts also registered significant increases. The futures contract for February delivery rose about 51 cents per MMBtu on the week to $7.674.
<![if !supportLists]>· <![endif]>Working gas in storage is well above the 5-year average for this time year, indicating a ready supply source to meet peak demand as the winter heating season progresses. As of Friday, December 28, working gas in storage was 2,921 Bcf, which is 8.2 percent above the 5-year (2002-2006) average.
<![if !supportLists]>· <![endif]>The spot price for West Texas Intermediate (WTI) crude oil increased $3.28 per barrel, trading yesterday at $99.17 per barrel or $17.10 per MMBtu.
Spot natural gas prices moved up sharply through the report week, with the largest increases in major gas-consuming centers in the Northeast. The direction of spot price movements was dictated by a large Arctic air mass that swept across the eastern half of the country, bringing sub-zero temperatures to parts of the upper Midwest and cold reaching as far south as Florida. The colder temperatures boosted space-heating demand, resulting in price increases of close to $1 per MMBtu and more at many trading locations in the country. On the week, the spot price at the Henry Hub in Louisiana increased $0.90 per MMBtu to $7.84, representing a 13-percent increase since last Wednesday, December 26. Other spot prices along the Gulf Coast in Louisiana also registered relatively large increases between $0.70 and $2.20 per MMBtu, resulting in an average regional price of $8.00 in trading yesterday (Thursday, January 3). Price increases generally were smaller at trading locations more distant from the weather in the eastern half of the Lower 48 States. The average price increase in East Texas for the report week was 93 cents per MMBtu, while the average price increase in West Texas was 70 cents. At the Arizona/Nevada trading points, prices increased 60 cents per MMBtu to $7.53, while in California the average price increased 58 cents per MMBtu to $7.495.
In the Northeast, the average price yesterday was $10.52 per MMBtu, which was $2.73 higher than the previous Wednesday. However, significant variability in pricing existed for much of the report week, including sharp increases exceeding $20 per MMBtu on Tuesday at a few trading locations as the frigid air mass moved into the region. For example, on Wednesday, January 2, the average spot price of natural gas off Iroquois Gas Transmission Zone 2 (with deliveries in New England) increased $27.90 per MMBtu for the day to $39.41, representing the largest increase in the region. However, the price increase was essentially reversed in trading yesterday, with the average price off Iroquois decreasing back to $14.08 per MMBtu (although it should be noted that this price was still $5.80 more than the price at the beginning of the report week). As extreme weather conditions increased heating load in the region, various natural gas transportation providers such as Iroquois Gas Transmission, Tennessee Gas Pipeline, and Transcontinental Gas Pipe Line Corporation have been reporting tight operating conditions. However, the reduction in transportation flexibility primarily affects shippers who have purchased less expensive, non-firm capacity that often is interrupted during peak demand periods.
Although prices for Rockies supplies this week did not increase as steeply as prices in the East, price levels in the Rocky Mountain region continued to be higher than last summer and parts of the fall, when lack of demand in the region, coupled with a lack of transportation outlets to the east, resulted in very low prices. For the week, the average Rockies price increased 54 cents per MMBtu to $6.88. The price for supplies on the Questar system in Utah increased 46 cents per MMBtu, or 7.5 percent, to $6.56. Although the current price at this market location substantially surpasses prices of roughly $1 to $2 per MMBtu in early October of this year, it is still more than $1 per MMBtu less than the Henry Hub price. The staged opening of the new Rockies Express Pipeline over the next couple of weeks is expected to improve the integration of this supply region with markets in other parts of the country and lessen the difference between the Gulf and Rockies prices.
Futures prices increased at the NYMEX, likely owing to wintry weather in the East and higher prices for competing products. The price of the near-month contract (for February delivery) rose $0.51 per MMBtu this week to $7.674, with the largest price movement occurring Wednesday, January 2, as the contract jumped up nearly 37 cents per MMBtu. Along with news of colder weather arriving, the near-month contract had increased for 3 consecutive trading days earlier in the report week until finally registering a decline (of about 18 cents per MMBtu) in trading yesterday. For the week, the near-month contract registered about a 7-percent increase in price. During the week, higher crude oil prices (including some intraday trading at more than $100 per barrel) likely provided upward pressure on all energy commodities. However, price increases from the pending cold weather likely were contained by a perception of adequate storage supplies for this winter season, now about 8.2 percent higher than the 5-year average for this time of year. The current February contract price of $7.674 per MMBtu is significantly higher ($0.76) than the February 2007 expiration price of $6.917 per MMBtu, but also a great deal lower ($0.73) than the expiration price of $8.40 for the February 2006 contract.
Contracts for futures prices beyond the near-month contract all generally increased during the week. At the end of trading yesterday, the 12-month strip, which is the average price for futures contracts over the next 12 months, was priced at $8.068 per MMBtu, an increase of about 40 cents since last Wednesday. Currently, the average price for contract months remaining in this winter heating season (February and March) is $7.686, which is 51 cents higher than the expiration price of $7.172 for the January 2008 contract.
Recent Natural Gas Market Data
Working gas in storage decreased to 2,921 Bcf as of Friday, December 28, 2007, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net withdrawal was 87 Bcf, which leaves storage levels 8.2 percent above the 5-year average. This report week’s implied net withdrawal is similar in size to the 5-year average withdrawal of 89 Bcf, but nearly doubles the estimated net withdrawal of 47 Bcf last year when the weather was more than 15 percent warmer as measured by National Weather Service heating degree-days (HDDs). As a result of the updated storage numbers, stocks are 160 Bcf less than last year at this time and 222 Bcf above the 5-year average of 2,699 Bcf.
This week’s reduction in inventories reflects the impact of the return of warmer-than-normal temperatures to major consuming regions in the Lower 48 States and reduced demand related to the holiday. Temperatures across the country were 11 percent warmer than normal, as measured by HDDs for the week ended December 27 (see Temperature Maps and Data). Temperatures in six Census Divisions were warmer than normal, with the highest deviations recorded in the East North Central and Middle Atlantic divisions (which contain major natural gas-consuming centers), where HDDs were more than 18 percent above normal. Despite these above-normal temperatures, weather during the report week was 18 percent colder than the previous year.
Other Market Trends:
EIA Releases Its Latest Report on U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves: Proved reserves of natural gas increased by 3 percent from 2005 to 2006, according to the Energy Information Administration’s (EIA) report, U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves 2006 Annual Report. There were 211,085 billion cubic feet (Bcf) of dry natural gas proved reserves in the United States as of December 31, 2006, reaching the highest level since 1976.
<![if !supportLists]>· <![endif]>Total U.S. reserve additions replaced 136 percent of 2006 dry natural gas production, decreasing from the 2005 reserves replacement rate of 164 percent.
<![if !supportLists]>· <![endif]>The largest additions to dry natural gas proved reserves in 2006 were recorded in Texas, where rapid development in the Barnett Shale reservoirs led to a 5,329-Bcf (9-percent) increase, supported by higher natural gas prices and advances in drilling and fracturing technology. Alaska and Utah were second and third, respectively, for dry natural gas proved reserve additions, where proved reserves rose by 2,074 Bcf (25 percent) and 851 Bcf (20 percent), respectively.
<![if !supportLists]>· <![endif]>Total discoveries, which are reserves attributable to field extensions, new field discoveries, and new reservoir discoveries in old fields, were 23,342 Bcf in 2006, increasing 1 percent over the 2005 level.
<![if !supportLists]>· <![endif]>Seven areas in the Lower 48 States recorded discoveries that exceeded 1 trillion cubic feet (Tcf), including the States of Texas (9.8 Tcf), Wyoming (2.2 Tcf), and Oklahoma (2.1 Tcf). These discoveries accounted for 20.1 Tcf or about 86 percent of total discoveries in the United States.
<![if !supportLists]>· <![endif]>The largest component of total discoveries in 2006 were existing gas field extensions, which accounted for 21.8 Tcf, increasing 3 percent over 2005 and 61 percent over the previous 10-year average.
<![if !supportLists]>· <![endif]>Proved reserves of wet natural gas as of December 31, 2006, were 220.4 Tcf, recording a 3-percent increase over the volume reported in 2005.
<![if !supportLists]>· <![endif]>Coalbed natural gas reserves decreased by 1 percent in 2006 and accounted for 9 percent of U.S. dry natural gas reserves.
EIA Will Update Its AEO2008 Reference Case: EIA announced on January 3 that it will be updating recently released projections of U.S. energy demand and supply in the Annual Energy Outlook 2008 (AEO2008) reference case in order to reflect the provisions of the Energy Independence and Security Act of 2007. The previously released AEO2008 reflected existing laws and policies as of October 2007. Since the reference case is used as a baseline for analyses of proposed policy changes, the revisions will include any estimated impacts of the new law on future energy use. The new fuel economy standards for motor vehicles, new efficiency standards for appliances and lighting, and the increase in the use of biofuels likely will have a significant impact on energy projections. The updated reference case is expected to be available in late February, and the updates will likely delay the release of the complete AEO2008 until April 2008.
Natural Gas Transportation Update:
<![if !supportLists]>· <![endif]>Southern Natural Gas Company announced on January 3 that because of high storage withdrawal requirements and peak demand, it will be cutting interruptible storage service (ISS) withdrawals to protected quantities until further notice.
<![if !supportLists]>· <![endif]>Effective January 1, Dominion Transmission, Inc. (DTI) issued an operational flow order (OFO) that limits hourly takes under firm transportation no-notice (FTNN) service until further notice. The OFO requires customers to limit delivery fluctuations to the systems north of Lindley Gate Station and Stateline facilities in the northern portion of the DTI operating area.
<![if !supportLists]>· <![endif]>Also on January 1, DTI announced a type 2 OFO in the New York area that will be in place until further notice. Eight facility systems north of the Lindley Gate Station and Stateline facilities in the northern portion of the DTI operating area will be affected by this OFO.
<![if !supportLists]>· <![endif]>Florida Gas Transmission Company reported an overage alert day for market area customers for January 1 and 2, 2008. The pipeline set a 20-percent tolerance for negative daily imbalances.
<![if !supportLists]>· <![endif]>Transcontinental Gas Pipe Line Corporation (Transco) posted a notice on December 18 advising of unplanned maintenance issues at Station 70 in Walthall County, Mississippi, and at Station 100 in Chilton County, Alabama. Those continuing issues affect Transco’s ability to provide interruptible services, manage imbalances on its system, and handle within-the-day flexibility. As of Tuesday, January 1, Transco will not allow excess storage withdrawals under Washington storage services or general storage services, and pool tolerances will be reduced to 1 percent. In addition, effective Wednesday, January 2, Transco issued an OFO that will be in effect until further notice.
<![if !supportLists]>· <![endif]>Transco notified its shippers of the termination of an imbalance OFO effective with gas day January 4, which reduced pool scheduling tolerances to 1 percent. The company returned pool scheduling tolerances to 4 percent and will also allow due-to-shipper (makeup delivery) nominations beginning with gas day Friday, January 4, 2008.