for week ending February 20, 2008 | Release date: February 21, 2008 | Previous weeks
Overview
(Wednesday, February 13, to Wednesday, February 20)
Released: February 21, 2008
Next release: February 28, 2008
Spot prices increased this week as
space-heating demand remained strong in large population centers in the Midwest
and Northeast. Continued cold temperatures
and increased crude oil prices, which rose to more than $100 per barrel yesterday
(February 20), contributed to increases in natural gas prices. On the week, the
spot price at the Henry Hub in Louisiana increased $0.73 per MMBtu to $9.08.
This is the highest spot price at the Henry Hub in over a year (since February
5, 2007, when the price reached $9.10 per MMBtu) and 72 percent higher than its
recent low of $5.29 on September 4, 2007. Other spot prices along the Gulf
Coast in Louisiana and Texas also registered relatively large increases between
$0.56 and $0.72 per MMBtu, resulting in an average regional price of $9.00 in
Louisiana and $8.79 in East Texas yesterday (Wednesday, February 20). 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 in West Texas increased 57 cents per MMBtu for the
week to $8.38, while prices increased an average of 55 cents in California to
$8.65.
In the Northeast, the average price yesterday
was $10.63 per MMBtu, which was 73 cents higher than the previous Wednesday. Significant variability in pricing existed for much
of the report week, including an increase exceeding $0.50 per MMBtu at several
market locations on Tuesday, February 19, in response to expectations of a
frigid air mass moving into the region. For the week, the average spot price
for delivery in New York City off Transcontinental Gas Pipe Line (Transco Zone
6 NY) increased $2.06 per MMBtu on the week to $12.94, which was the highest
net change of any trading location in the regions. As extreme weather
conditions have increased heating load in the region, various natural gas transportation
providers such as Iroquois Gas Transmission Company, Tennessee Gas Pipeline,
and Transcontinental Gas Pipe Line Corporation have been reporting tight
operating conditions. This reduction in transportation flexibility primarily affects
shippers who have purchased less expensive, non-firm capacity that often is
interrupted during peak demand periods.
One
factor in the recent runup in prices may be the relatively low imports of
liquefied natural gas (LNG) to the Lower 48 States. LNG imports have averaged less than 1 Bcf per
day this winter, based on the send-out data published on companies’ websites.
LNG cargoes instead are heading to Europe and Asia, where buyers continue to purchase LNG at much higher
prices than have prevailed in U.S. markets. Recent LNG imports are
substantially lower than the large-scale volumes that moved into the U.S.
market last summer, when at times they averaged more than 3 Bcf per day. For
this report week, the Trunkline LNG terminal in Lake Charles, Louisiana, has
reported low sendout volumes of regasified LNG (an average of 12 MMcf per day).
Additionally, activity is limited at Dominion’s terminal in Cove Point,
Maryland (with sendout averaging just 36 MMcf per day). Meanwhile, activity has
not been affected as significantly at the Suez North America LNG terminal in
Everett, Massachusetts, where sendout activity of more than 400 MMcf per day is
reported. The reduction in U.S. LNG imports reflects changes in LNG supply and
demand across the world. For example,
Japan, which is the largest importer of LNG in the world, last year experienced
a massive earthquake that resulted in the shutdown of nuclear power plants. As
a result, Japan is now relying more on LNG as a fuel for electric power
generation. Some LNG importing countries in Asian and Europe rely on LNG
imports as a primary source of natural gas, resulting in a willingness at times
to pay prices exceeding those in U.S. markets in order to have LNG cargos
diverted to meet their demand requirements.
Futures
prices increased at the NYMEX, likely because of wintry weather in the Midwest
and East and higher prices for competing products. The price of the near-month
contract (for March delivery) rose $0.58 per MMBtu this week to $8.965 at the
close of trading on Wednesday, February 20. 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. The largest daily price
increases occurred last Thursday ($0.38 per MMBtu) and Tuesday ($0.32), both
days in which crude oil prices advanced significantly. However, price increases
likely resulted from continuing cold, which has boosted space-heating demand
and a pattern of large storage withdrawals this heating season. The current March
contract price of $8.965 per MMBtu is nearly $1 per MMBtu higher than the
January 2008 contract price of $7.996. It is also significantly higher than both
the March 2007 expiration price of $7.55 per MMBtu and the March 2006 contract
price of $7.112 at expiration.
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 for futures contracts over the next
12 months, was priced at $9.31 per MMBtu, an increase of about 45 cents since
last Wednesday. Currently, the contract
prices for deliveries in March, April, and May are similarly priced at about
$8.97 per MMBtu. Beginning with the June 2008 contract, forward prices increase
steadily through the remaining months of 2008 and the beginning of 2009. The
highest-priced contract in the forward strip is the January 2009 contract,
which closed at $9.995 per MMBtu on Wednesday, February 20.
Recent Natural Gas Market Data
Working gas in storage decreased to
1,770 Bcf as of Friday, February 15, 2008, according to EIA’s Weekly Natural
Gas Storage Report (see Storage Figure). This report week’s implied net withdrawal of 172 Bcf
is 8 percent higher than the 5-year average withdrawal of 160 Bcf for the week.
However, the size of the net withdrawal is substantially less (25 percent) than
the withdrawal of 228 Bcf for the comparable week last year, a period of
bitterly cold temperatures in the Lower 48 States. Storage levels as of
February 15 were still 5.8 percent above the 5-year average, despite the
continuing relatively large withdrawals from storage in the past several weeks.
If net withdrawals were to equal the 5-year average for the remainder of the
heating season, underground storage levels would reach 1,345 Bcf at the end of
March.
This week’s above-average withdrawal
resulted from continuing cold temperatures in much of the country. Temperatures across the country were 4 percent colder
than normal, as measured by National Weather Service heating degree-days (HDDs)
for the week ended February 14. HDDs in the East North Central Census Division
totaled 17 percent above normal. The East North Central Division includes major
population centers in the Midwest, the region of the country with the largest
percentage of residents that heat their homes with natural gas (see Temperature
Maps and Data). In
comparison with last year at this time, however, temperatures for this report
week were significantly warmer and HDDs were 13 percent lower. According to the
National Weather Service, temperatures in every Census Division except the Mountain
Division were higher during the report week this year. As a result, the net
withdrawal (172 Bcf) for the report week ending February 15, 2008, was
considerably lower than the withdrawal (228 Bcf) for the comparable report
period last year.
Other Market Trends:
MMS
Issues Final Notices of Eastern and Central Gulf Lease Sales: The Minerals Management Service (MMS) issued final
notices of Lease Sales 206 and 224 on February 13, 2008. Both Federal oil and
gas lease sales are scheduled to take place on March 19, 2008, at the Louisiana
Superdome in New Orleans. Central Gulf of Mexico (GOM) Lease Sale 206 includes
about 5,000 unleased blocks covering more than 28.5 million acres in the
Central GOM planning area, offshore Louisiana, Mississippi, and Alabama. The acreage is located from 3 to about 230
miles offshore and in water depths of about 10 feet to more than 11,200
feet. MMS projects that Sale 206
contains between 877 to 1,457 million barrels of oil and from 3.66 to 5.90
trillion cubic feet (Tcf) of natural gas. Eastern Gulf Lease Sale 224, mandated
by the Gulf of Mexico Energy Security Act of 2006, consists of 118 whole or
partial unleased blocks that cover about 547,000 acres of the Eastern GOM
planning area. The acreage is located at
least 125 statute miles offshore, south of the Florida panhandle and west of
the Military Mission Line in water depths ranging between about 2,700 feet to
10,200 feet. Eastern Gulf Lease Sale 224
is the only sale scheduled in the MMS’s current Five-Year Oil and Gas Leasing
Program to include acreage in the Eastern GOM.
The last time this acreage was available in the Eastern GOM lease sale
was in 1988. Furthermore, according to
MMS, it is the first sale in which the revenue sharing provision of the Gulf of
Mexico Energy Security Act of 2006 will start immediately. MMS estimates that the area has between 100
and 140 million barrels of oil and from 0.16 to 0.34 Tcf of natural gas.
Revenue from all leases in the Eastern GOM Sale 224 will be shared by Alabama,
Mississippi, Louisiana, and Texas.
Natural Gas Transportation Update:
·
Mississippi
River Transmission Corporation (MRT) issued a system protection warning (SPW)
on February 15 that will remain in effect until further notice. The warning is a response to forecasted cold
weather. During the SPW, MRT will not
schedule any mainline interruptible or authorized overrun volumes for delivery
located north of Glendale, Arkansas; firm volumes will be limited to their
primary direction of flow. During the duration of the SPW, MRT will not
schedule volumes that result in a daily short position in the market zone, and
MRT will not cover imbalances in the market zone that result from actual
deliveries exceeding scheduled deliveries.
According to MRT, capacity is available on the East Line and shippers
who are affected by the SPW are encouraged to use the East Line or reduce
delivery volumes.
·
Northern Natural
Gas Company issued a system overrun limitation (SOL) for all market-area zones
for gas day February 21, 2008. The SOL
was the result of continued below-zero forecasted temperatures that will last
through much of the gas day.
·
On February 18,
Trunkline Gas Company announced an outage on the Kaplan 200-2 line in South
Louisiana between gate valve sections 202-2 and 203-2. The outage was necessary
so that the installation of the Cheniere interconnect could begin as scheduled
on February 19, 2008. The outage is
expected to last 5 days, and shippers are not affected at this time.
·
On February 15,
Eagle Rock Energy Partners, L.P. announced that its subsidiary, HESCO Gathering
Company, experienced an explosion and fire on its 20-inch pipeline located in a
remote rural area of Hidalgo County, Texas.
According to the company, there were no injuries or fatalities in
connection with the incident. The
company shut off the source of natural gas flowing through the affected
pipeline, which contained the fire. At
the time of the fire, about 35 MMcf per day of natural gas flowed through the
pipeline, and at present, all but 5 MMcf per day of the pipeline's volumes have
been diverted to alternate outlets. The
explosion is under investigation in order to determine the cause of the
incident.