Natural Gas

Overview (Wednesday, March 12, to Wednesday, March 19)

Released: March 20, 2008

Next release: March 27, 2008

 

• Since Wednesday, March 12, natural gas spot prices eased at virtually all markets in the Lower 48 States.  Prices at the Henry Hub fell 58 cents per million Btu (MMBtu), or about 6 percent, to $9.11 per MMBtu. 
• At the New York Mercantile Exchange (NYMEX), the futures contract for April delivery at the Henry Hub settled yesterday (March 19) at $9.024 per MMBtu, falling nearly 99 cents or about 10 percent since Wednesday, March 12. 
• Natural gas in storage was 1,313 billion cubic feet (Bcf) as of March 14, which is 2.3 percent above the 5-year average (2003-2007), following an implied net withdrawal of 85 Bcf. 
• The spot price for West Texas Intermediate (WTI) crude oil decreased $6.61 per barrel on the week to $103.25 per barrel or $17.80 per MMBtu.

 

 

 

Prices:

Natural gas spot prices generally decreased on the week (Wednesday-Wednesday) at most market locations, with intraweek spot market trading characterized by price increases through Friday, March 14, and declines beginning on Monday, March 17.  The resilience in spot prices late last week likely can be attributed to growing concerns about the levels of working gas at the end of the heating season.  Moderating temperatures and falling crude oil prices contributed to the price declines.  Price declines since Monday, March 17, more than offset the gains made in trading heading into last weekend. 

 

On a regional basis, prices fell by about 21 to 61 cents per MMBtu, or about 2 to 6 percent, since Wednesday, March 12.  Price decreases in the Florida region were the smallest in the Lower 48 States.  Prices in Florida fell by 21 cents per MMBtu to $9.74 in trading yesterday (March 19).  Elsewhere, regional price declines for the week exceeded 33 cents per MMBtu, with the Midwest region posting the largest declines in the Lower 48 States, falling 61 cents per MMBtu or about 6 percent.

 

Despite the declines since last Wednesday, March 12, spot prices remain higher than year-ago levels.  As of March 19, spot prices remained more than 27 percent above levels recorded last year at this time.  Prices at the Henry Hub yesterday (March 19) exceeded the level reported in 2007 by $2.42 per MMBtu, or about 36 percent.  Prices at the Henry Hub have been trending upwards since September 4, 2007, when they reached $5.29 per MMBtu.  After peaking on March 11 at $9.85 per MMBtu, prices reached $9.84 on March 14 before declining to $9.11 in trading yesterday. 

 

 

 

At the NYMEX, the price of the contract for April 2008 delivery declined almost 99 cents per MMBtu since last Wednesday, March 12, while futures prices for natural gas delivery through March 2009 posted slightly smaller declines.  Prices for the 12-month futures strip (April 2008 through March 2009) averaged $9.578 per MMBtu as of Wednesday, March 19, falling about $1.93 per MMBtu, or about 9 percent, since last Wednesday, March 12.  Contract prices for delivery in each successive month posted smaller declines than the preceding month’s contract, down to a decline of about 85 cents for the March 2009 contract. 

 

On Wednesday, March 19, the 12-month futures strip (April 2008 though March 2009) traded at a premium of 46 cents per MMBtu relative to the Henry Hub spot price. Settlement prices for delivery over the 12-month period (April 2008 though March 2009) ranged between $9.024 and $10.22 per MMBtu.  Contracts for delivery next winter (December 2008 through March 2009) traded at an average premium of 98 cents per MMBtu relative to the spot price.

 

 

Recent Natural Gas Market Data

 

Storage:

Working gas in storage decreased to 1,313 Bcf as of Friday, March 14, according to EIA’s Weekly Natural Gas Storage Report  (see Storage Figure).  The net withdrawal from working gas storage of 85 Bcf significantly exceeds the 5-year average of 57 Bcf and last year’s net withdrawal of 21 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 7 percent above normal levels during the report week, and almost 24 percent above 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 above last year’s level, except for the New England and Middle Atlantic Census Divisions where heating degree-days were 16 and 13 percent less than last year for the same report week. 

 

At 1,313 Bcf, working gas in storage is at the lowest level since April 8, 2005, when working gas in storage was 1,293 Bcf.  Nevertheless, working gas in storage is on track to end the heating season above the 5-year average. If working gas withdrawals during the remainder of the heating season match the 5-year average withdrawal for the period, working gas will end the heating season on March 31 at 1,277 Bcf, exceeding the average level by 29 Bcf.

 

 

 

Other Market Trends:

EIA Reports Financial Results for Independent Energy Companies.  On March 19, the Energy Information Administration (EIA) released Financial News for Independent Energy Companies, Fourth Quarter 2007, which includes financial information for 39 independent energy companies.  These companies are typically smaller than the major energy companies and do not have integrated production and refining operations.  According to EIA, total income for the 39 companies grew by 17 percent in the fourth quarter of 2007 to $5.5 billion, compared with earnings in the fourth quarter of 2006 ($4.7 billion), mainly because of the performance of producers and oil field service companies. The 54-percent increase in oil prices along with the 6-percent increase in natural gas prices led to the sharp increase in profits. In contrast, refiner/marketers had declines in earnings relative to the year-ago fourth-quarter levels. Over the full year, the three groups of independent energy companies (oil and gas producers, oil field companies, and refiners) posted combined revenue of $143.9 billion, which was 23.1 percent higher than the 2006 total revenues of $116.8 billion.

 

Natural Gas Transportation Update:

• Transwestern Pipeline Company declared a force majeure event for March 16 through March 18, as a result of an outage at Compressor Station Number 2 in Flagstaff, Arizona.  The outage reduced the Thoreau/West System capacity from about 1,220,000 MMBtu per day to approximately 1,075,000 MMBtu per day.  Further capacity reductions were put in place for March 19 and 20, resulting in capacity of 1,050,000 MMBtu per day. The pipeline expects that the compressor station will return to its original capacity of 1,220,000 MMBtu per day on March 21.
• Columbia Gulf Pipeline Company reported that as of March 14, capacity through Line 100 north of the Delhi Constraint point in Louisiana was decreased to 1,575,000 decatherms.  Customers are required to reduce supplies to match this market reduction in order to remain in balance.
• Florida Gas Transmission (FGT) announced that as of March 20, maintenance at Compressor Station Number 6 was being conducted, which requires all three units to be off-line. The outage is expected to last until April.  During this work FGT will schedule up to approximately 150,000 MMBtu per day through Compressor Station Number 6. Normally, FGT schedules up to 300,000 MMBtu per day.

 

 

Short-Term Energy Outlook