Natural Gas

Overview (Wednesday, February 20, to Wednesday, February 27)

Released: February 28, 2008

Next release: March 6, 2008

 

 

• Since Wednesday, February 20, natural gas spot prices increased at most markets in the Lower 48 States outside the Rocky Mountain and Midcontinent regions.  Prices at the Henry Hub rose 13 cents per million Btu (MMBtu), or about 1 percent, to $9.21 per MMBtu. 
• At the New York Mercantile Exchange (NYMEX), the futures contract for March delivery at the Henry Hub expired yesterday (February 27) at $8.930 per MMBtu, falling 4 cents or less than 1 percent since Wednesday, February 20. 
• Natural gas in storage was 1,619 billion cubic feet (Bcf) as of February 22, which is 6 percent above the 5-year average (2003-2007), following an implied net withdrawal of 151 Bcf. 
• The spot price for West Texas Intermediate (WTI) crude oil decreased $1.27 per barrel on the week to $99.59 per barrel or $17.17 per MMBtu.

 

 

 

Prices:

Natural gas spot prices generally increased on the week (Wednesday-Wednesday) at most market locations, in a week of mixed trading.  Coming off a period of extreme cold, moderating temperatures and easing pipeline constraints resulted in price declines heading into the weekend on Friday, February 22.  A return of cold weather to most of the Lower 48 States contributed to rebounding prices with the resumption of trading on Monday, February 25.  This price rally resulted in net gains on the week (Wednesday-Wednesday) posted at most market locations outside of the Midcontinent and Rocky Mountains regions. 

 

On a regional basis, prices at the end of the week traded within about 10 cents per MMBtu, or about 1 percent, of the levels recorded last Wednesday, February 20.  The principal exceptions to this overall pattern occurred in the Northeast, Florida, Louisiana, and Mississippi/Alabama regions.  Price increases in the Florida region were the second largest in the Lower 48 States, which is quite unusual for this time of year in the Sunshine State.  Prices in Florida climbed $1.11 per MMBtu since last Wednesday, February 20, as cold temperatures moved into the region.  Meanwhile, prices in the Louisiana and Mississippi/Alabama regions increased 22 and 26 cents per MMBtu, respectively. The only regional declines since last Wednesday, February 20, occurred in the Rocky Mountain and Midcontinent regions, with price decreases of about a nickel in each region.  The narrow price declines in these regions likely resulted from modest decreases in heating demand for natural gas since last week. 

 

The largest price increases in the Lower 48 States occurred in the Northeast region where the average price increased $2.54 per MMBtu or about 22 percent since last Wednesday, February 20.  Prices in the Northeast region were the highest in the Nation, averaging $13.16 per MMBtu on Wednesday, February 27.  The price increases in the Northeast region were by far the largest in relative as well as absolute terms, as a result of extreme cold in the region.  Intraweek price movements in the region were also the most variable in the Lower 48 States, with daily price swings of as much as $8.93 per MMBtu at the New York citygate, which posted a week-low price of $9.51 per MMBtu on Friday, February 22, and a week-high price of $18.44 per MMBtu. 

 

 

 

 

 

At the NYMEX, the price of the contract for March 2008 delivery declined 4 cents per MMBtu since last Wednesday, February 20, while futures prices for natural gas delivery through February 2009 increased.  Since becoming the near-month contract on January 30, the March contract price increased about 89 cents per MMBtu, or 11 percent, to reach $8.930 at final settlement yesterday.  Prices for the 12-month futures strip (March 2008 through February 2009) averaged $9.473 per MMBtu as of Wednesday, February 27, rising about 16 cents per MMBtu, or less than 2 percent, since last Wednesday, February 20.  The increase in the 12-month strip occurred despite the week-on-week decline in the price of the futures contract for March 2008, which expired yesterday (February 27) at $8.930 per MMBtu, declining 28 cents per MMBtu in its final day of trading. 

 

On Wednesday, February 27, the 12-month futures strip (March 2008 though February 2009) traded at a premium of 26 cents per MMBtu relative to the Henry Hub spot price. Settlement prices for delivery over the 12-month period (March 2008 though February 2009) ranged between $8.930 and 10.263 per MMBtu.  Prices for delivery next winter (December 2008 through February 2009) traded at a premium of 97 cents per MMBtu relative to the spot price.

 

 

Recent Natural Gas Market Data

 

 

Storage:

Working gas in storage decreased to 1,619 Bcf as of Friday, February 22, 2008, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure).  The net withdrawal from working gas storage of 151 Bcf is 7 percent more than the 5-year average of 141 Bcf and 4 percent more than last year’s net withdrawal of 145 Bcf for the same report week.  These differences likely reflected the heating demand for natural gas as heating degree-days in the Lower 48 States were about 8 percent above normal levels during the report week, but were almost 7 percent below the level reported for the same week last year, according to the National Weather Service’s degree-day data (see Temperature Maps and Data). All Census Divisions in the Lower 48 States posted heating degree-days well below last year’s level, except for the West North Central, Pacific, and Mountain Census Divisions where heating degree-days were 19, 44, and 17 percent more than last year for the same report week. 

 

At 151 Bcf, the net withdrawal from storage marked the sixth consecutive week in which implied net withdrawals exceeded 100 Bcf, with working gas stocks declining 1,072 Bcf during the period.  During the 6-week period since January 4, withdrawals from storage have averaged 162 Bcf per week, compared with the 5-year average of 157 Bcf for the same period.  If working gas stocks decline according to the 5-year average for the remainder of the heating season, working gas in storage on March 31, 2008, will total about 1,335 Bcf.

 

   

Other Market Trends:

Natural Gas Rig Count: The number of natural gas rigs drilling increased to 1,430 for the week ended February 22, 2008, up from 1,428 in the previous report week, according to Baker-Hughes Incorporated. However, rigs were about 3 percent lower than the 1,472 recorded for the same week last year.  The average number of natural gas rigs drilling so far this year is about 2 percent less than during the same period last year, but about 12 percent higher than in 2006. Drilling activity for natural gas has leveled off since September 2007, as the gas rigs drilling began declining from their all-time high of 1,523 recorded for the week ended August 31, 2007.  This turnaround ended the upward trend that began in mid-2002. The share of natural gas rigs drilling as a percentage of the total gas and oil rig count has also been decreasing, reaching 80.7 percent for the latest report week. At its peak, the share of natural gas rigs drilling was 89.3 percent of the total rig count in June 2005, when the overall share of natural gas rigs began declining (see Natural Gas Rigs Graph).

 

 

Natural Gas Transportation Update:

·     Columbia Gulf Transmission Company updated its February 6 force majeure notice concerning the damage caused by the tornado that struck its Hartsville, Tennessee, compressor station, indicating that the station has been declared a complete loss. The pipeline has initiated efforts to provide both a temporary and a permanent solution for the replacement of the compressor station. According to the February 22 posting, about 50,000 horsepower of relocated and rented compression capacity will be available at the facility between June 1 and July 1, 2008, which would allow the pipeline to be restored to its FERC-certified capacity of 2,156 million decatherms (Dth) per day. A permanent replacement of the original facility is expected to be operational by April 1, 2010.

·     Tennessee Gas Pipeline Company issued a notice of an emergency repair at its Compressor Station 827 near Alexandria, Louisiana. The pipeline reported that immediate repairs were necessary as a result of a bearing issue on the compressor station’s solar turbine unit, estimating that the unit will be back in service by mid-March.

·     Northwest Pipeline Company announced that as of March 1 and until further notice, Clay Basin storage facility withdrawal volumes will be limited to 80,000 Dth per day. The reduction requirement is necessary in order to limit the liquid flow from Clay Basin into the pipeline system.

·     Transcontinental Gas Pipeline Corporation announced shipper restrictions effective February 27, as a result of below-normal temperatures for much of its market area. According to the pipeline, in order to maintain operational flexibility, it will not allow any delivery make-up imbalance nominations, regardless of shippers’ imbalance positions.

 

 

 

 Short-Term Energy Outlook