Natural Gas

Overview (Wednesday, January 2, 2007 to Thursday, January 9, 2008)

Released: January 10, 2008

Next release: January 17, 2008

 

·         In the eastern half of the Lower 48 States, temperatures warmed significantly this report week, resulting in a respite from elevated prices at many trading locations. In the West, however, bitter cold persisted and prices continued to move upward as space-heating demand remained strong. During the report week, the Henry Hub spot price increased $0.05 per million Btu (MMBtu) to $7.88.

 

·         At the New York Mercantile Exchange (NYMEX), prices for futures contracts after an initial decline increased through the past 4 trading days as the timing of another cold front became more certain. The futures contract for February delivery rose about 25 cents per MMBtu on the week to $8.099.

 

·         The level of working gas in underground storage continues to be well above the 5-year average for this time of year. As of Friday, January 4, working gas in storage was 2,750 Bcf, which is 4.6 percent above the 5-year (2003-2007) average. The implied net withdrawal for the week was 171 Bcf, the largest so far this heating season.

 

·         The spot price for West Texas Intermediate (WTI) crude oil decreased $4.00 per barrel on the week, trading yesterday at $95.64 per barrel or $16.49 per MMBtu.

 

 

 

Prices:

Spot prices at trading locations east of the Mississippi River generally declined this week, while prices increased at locations in the West. Weather conditions largely dictated the differences in price movements, with the coldest temperatures of the heating season in the East at the beginning of the report week transitioning to unseasonably warm temperatures. Production-area prices in Louisiana decreased an average of 18 cents per MMBtu to $7.84, although the Henry Hub price increased 5 cents to $7.88.  In the Northeast, where spot prices had surged the previous week, price declines were significant. The average price in the region on Wednesday (January 9) was $8.52, less than half the average price of the prior Wednesday ($17.48). The average spot price of natural gas off Iroquois Gas Transmission Zone 2 (with deliveries in New England) this week posted the largest decrease in the region, falling $30.65 per MMBtu to $8.76. The pattern of steep declines this week following the run-up of the prior week reflects the industry operating conditions. With increased heating load in major population centers, various natural gas transportation providers such as Iroquois Gas Transmission System and Transcontinental Gas Pipe Line Corporation reported tight operating conditions. The reduction in transportation flexibility primarily affects shippers who have purchased less expensive, non-firm capacity that often is interrupted during peak demand periods. Prices surge in downstream markets as local suppliers need to meet their delivery obligations or large-volume consumers try to meet their own requirements.  Prices then fall as precipitously as they increased with the passing of extreme temperatures and the easing of pipeline restrictions.

 

In Midwest consuming locations, the average price increased 8 cents per MMBtu to $8.07, as traders returned from a balmy weekend to colder temperatures in the region.  At Chicago, the price for next-day delivery decreased during a brief warm-up late last week, then increased in three successive trading sessions, finishing the report week unchanged at $7.96 per MMBtu. Price increases in producing areas connected by pipeline to Midwest consuming markets also likely provided some upward price pressure on supplies. For example, in East Texas, the average price increase for the report week was 12 cents per MMBtu.

 

Counter to the price movements in the East, prices for upstream Rockies supplies and downstream consuming markets in the West increased this report week. The West continued to experience lower-than-normal temperatures during the report week, which sustained price increases from the prior week--although at levels below those seen in the East. For the week, the average Rockies price increased 31 cents to $7.27 per MMBtu. The price for supplies at Opal, Wyoming, increased 50 cents per MMBtu, or 7.5 percent, to $7.13. The current price at this market location substantially surpasses prices of roughly $2 per MMBtu that prevailed in early October. The staged opening of the new Rockies Express Pipeline (REX) over the past couple of weeks, as well as sustained cold temperatures, have resulted in the higher prices in the region. Transportation capacity on REX is expected to be available all the way to Brown County, Kansas, on January 12 (and points into Missouri in February). The new pipeline is expected to improve the integration of the Rockies supply region with markets in other parts of the country, and this in turn is expected to lessen the difference between the Gulf and Rockies prices. At the Arizona/Nevada trading points, prices increased 4 cents per MMBtu to $7.67, while in California the average price increased 12 cents per MMBtu to $7.67.

 

 

 

 

 

Futures prices increased at the NYMEX, with forecasters now expecting the return of seasonal temperatures in the coming days. The price of the near-month contract (for February delivery) rose $0.25 per MMBtu this week to $8.099. Combined with a large price increase the prior report week, the price increase this week means the value of the February contract has increased by more than 93 cents, or more than 13 percent, since December 26, 2007. The increases this week may have come in anticipation of the largest pull from underground storage so far this heating season (for the week ending January 4 but reported on Thursday, January 10). During the report week, crude oil prices continued to trade at exceptionally high levels relative to historical norms, likely providing 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 4.6 percent higher than the 5-year average for this time of year. The current February contract price of $8.099 per MMBtu is significantly higher ($1.182) than the February 2007 expiration price of $6.917 per MMBtu, but also a great deal lower ($0.30) 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 $8.369 per MMBtu, an increase of about 11.2 cents since last Wednesday. Currently, the average price for contract months remaining in this winter heating season (February and March) is $8.094, which is 92 cents higher than the expiration price of $7.172 for the January 2008 contract.

 

 

Recent Natural Gas Market Data

 

 

Storage:

Working gas in storage was 2,750 Bcf as of Friday, January 4, 2008, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net withdrawal was 171 Bcf, which leaves storage levels at 4.6 percent above the 5-year average. This report week’s implied net withdrawal is substantially more than the withdrawal for the same report week last year, when 49 Bcf was withdrawn. At a current aggregate level of 2,750 Bcf, underground storage stocks are 282 Bcf less than last year at this time and 122 Bcf above the 5-year average of 2,628 Bcf. 

 

This week’s withdrawal reflects the impact of the return of cold temperatures to major consuming regions in the Lower 48 States. Temperatures across the country were 37 percent colder than last year at this time and about normal, as measured by National Weather Service heating degree-days (HDDs) for the week ended January 3 (see Temperature Maps and Data). HDDs in five Census Divisions were colder than normal, with the highest deviations recorded in the western part of the country. The East North Central Division, which includes Chicago and other Midwestern cities, recorded 60 percent more HDDs than last year at the same time, the largest deviation of any Census Division (see Temperature Maps).

 

 

   

 

Other Market Trends:

EIA Releases January 2008 Short-Term Energy Outlook: In its latest Short-Term Energy Outlook (STEO), released January 8, EIA projects that the Henry Hub spot price is expected to average about $7.78 per thousand cubic feet (Mcf) in 2008 and 7.92 per Mcf in 2009. Total natural gas consumption is estimated to have increased by 6.0 percent in 2007 because of increases in the residential, commercial, and electric power sectors that occurred in the first half of 2007.  However, in 2008 and 2009, the upward trend in total consumption is expected to reverse with decreases of 0.6 percent and 1 percent, respectively, on the assumption that near-normal weather conditions occur during the 2 years.  U.S. marketed natural gas production is projected to increase by 1.6 percent in 2008 and by 0.6 percent in 2009.  The expected increase in 2008 is due mainly to the planned startup of new deepwater Gulf of Mexico supply infrastructure, resulting in an expected increase in Gulf production of 7.9 percent in 2008.  In addition, lower 48 onshore production is expected to grow by 0.5 percent in 2008.  Liquefied natural gas (LNG) imports were estimated at 781 Bcf in 2007, which is 34 percent higher than in 2006. LNG import volumes are expected to increase to 937 Bcf and 1,179 Bcf in 2008 and 2009, respectively. Working natural gas in storage was 2,921 Bcf as of December 28, 2007, which was 222 Bcf above the 5-year average. 

 

GAO Releases New Report on Tanker Safety: The General Accountability Office’s (GAO) January 9 report, Federal Efforts Needed to Address Challenges in Preventing and Responding to Terrorist Attacks on Energy Commodity Tankers, found that major challenges continue to exist in liquefied natural gas (LNG), crude oil, and refined petroleum products tanker safety. These challenges include domestic resource constraints, substantial disparities in implementation between the domestic and international efforts, lack of integrated plans for addressing fuel spills and terrorist attacks on tankers, and the redistribution of Coast Guard resources to U.S. ports where most LNG shipments arrive. The report also addresses the types of threats that tankers face and the potential consequences of a successful attack. GAO’s review spanned several foreign and domestic ports, and multiple steps to analyze data and gather opinions from agencies and stakeholders. Based on its findings, the GAO recommends that agencies heighten security and protection of LNG shipments and help ensure that ports develop plans for dealing with economic consequences of an attack. These agencies include the U.S. Coast Guard, Customs and Border Protection, Federal Bureau of Investigation, U.S. Navy, Bureau of Consular Affairs, and various State and local law enforcement agencies. Other GAO recommendations include calls to integrate terrorism and spill response plans at the national and local level and to develop performance measures for emergency response.

 

Natural Gas Transportation Update:

·        Rockies Express Pipeline (REX) released an update on January 3 that final preparations for providing interim service to the ANR delivery point on REX-West in Kansas are underway. Furthermore, placement of compressor stations into service is nearly complete, and REX Pipeline expects that it will be providing interim service to the ANR delivery point and points upstream on or about January 12, 2008. All other receipt and delivery points on the REX system upstream of the ANR delivery point are expected to be placed into service at the same time as the main pipeline system.

·        As part of the Jackson Prairie deliverability expansion project in Utah, Northwest Pipeline Company announced that it is no longer accepting injection requests for interruptible storage or park capacity at the Jackson Prairie storage facility as of January 3. Shippers who currently have interruptible or park service in the storage facility can continue to store their gas, However, they might be asked to withdraw some natural gas volumes if it becomes necessary to reduce pressure in the facility.

·        Transcontinental Gas Pipe Line Company (Transco) announced that it placed an expansion of its system into service, increasing firm capacity into the New York City area by 100,000 decatherms (Dth) per day. The Leidy-to-Long Island project required expansion of certain Transco facilities in New Jersey, New York, and Pennsylvania. This included adding approximately 12 miles of new 42-inch-diameter pipeline, replacing approximately 2.5 miles of existing 42-inch-diameter pipeline, adding a new compressor facility in Old Bridge, New Jersey, and minor modifications to several other Transco facilities.

·        ANR Pipeline Company began unplanned engine repairs at its Joliet, Illinois, compressor station in the Northern Fuel Segment of Main Line 7. The repairs will reduce the total NGPL-Joliet interconnect capacity to 90,000 Dth per day between January 9 and 18. Based on current nominations, the pipeline anticipates that the reductions will result in curtailment of interruptible and firm secondary nominations.

·        Southern California Gas Company reported losing 300 MMcf per day of injection capacity at the Aliso Canyon in Los Angeles County storage facility as a result of maintenance. The work which began on January 8 is expected to continue until March 14.

 

 Short-Term Energy Outlook