Overview (Wednesday, March 19, to Wednesday, March 26)
Released: March 27, 2008
Next release: April 3, 2008
<![if !supportLists]>· <![endif]>Since Wednesday, March 19, natural gas prices increased on both the spot and futures markets.
<![if !supportLists]>· <![endif]>The spot price at the Henry Hub increased 14 cents per million Btu (MMBtu) or 1.5 percent on the week, averaging $9.25 per MMBtu yesterday.
<![if !supportLists]>· <![endif]>One day ahead of its expiration as the near-month contract, the price of the April 2008 futures contract settled at $9.572 per MMBtu, increasing about 55 cents or 6 percent since last Wednesday.
<![if !supportLists]>· <![endif]>Natural gas in storage was 1,277 Bcf as of March 21, which is 2.7 percent above the 5-year average.
<![if !supportLists]>· <![endif]>The spot price for West Texas Intermediate (WTI) crude oil increased $2.58 per barrel on the week to $105.83 per barrel or $18.25 per MMBtu. In yesterday’s trading alone, however, the WTI price jumped $4.68 per barrel or about 4 percent.
Despite temporary relief from the cold during the week in several regions, natural gas spot prices registered increases in the majority of the market locations in the Lower 48 States. Spot price increases on the week were limited, however, ranging mostly between 10 and 20 cents per MMBtu. The Henry Hub spot price increased 14 cents, or less than 2 percent, on the week to $9.25 per MMBtu. Other trading locations in Louisiana and along the gulf coast also posted similar increases with the exception of the Mississippi River Transmission trading location in Louisiana, which posted a net weekly decrease of 17 cents or 2 percent per MMBtu.
West of the Rockies, abundant supply in some areas and an increase in heating load in others led to mixed price movements on the week. The weekly price decreases in the Rockies, California, and Arizona/Nevada trading regions were mostly around 1 percent. However, all trading regions in the Lower 48 States registered net increases on the week in the regional average prices, with the exception of Arizona/Nevada, where prices decreased 5 cents, as well as West Texas and the Midcontinent that exhibited no change on a regional level.
One day prior to its expiration as the near-month contract, the April 2008 contract settled at $9.572 per MMBtu at the New York Mercantile Exchange (NYMEX). The near-month contract increased 55 cents, or 6 percent, on the week after registering two sizeable increases of 26 cents and 15 cents on Tuesday and Wednesday (March 25 and 26), respectively. The price of the April contract has decreased somewhat since it reached the highest price of a near-month contract in more than 2 years at $10.230 per MMBtu on March 13. As of yesterday, the April 2008 contract was $2.505 and $2.318 per MMBtu higher than the April 2006 and April 2007 contracts, respectively, for roughly the same time.
Futures contracts for each delivery month through the end of the next heating season all rose on the week by successively larger amounts. As a result, the price of the 12-month strip increased by 60 cents per MMBtu, or 6.3 percent, to $10.169 per MMBtu. This price pattern indicates an expectation of market tightness over the next year, which may be in response to high crude oil prices and storage levels that are significantly below last year’s level. At 1,277 Bcf, it is almost certain that storage levels by the end of the heating season will fall below the 5-year average of 1,273 Bcf, which would be the first time since 2003 that end-of-heating-season inventories are less than the 5-year average for the preceding 5 years.
The premium of the NYMEX contract for delivery in January 2009 (the highest-priced contract in the strip) over the Henry Hub spot price is $1.61 per MMBtu, which is relatively low compared with the previous 2 years. At this time last year, the difference between the Henry Hub spot price and the price for delivery the following January was $2.44 per MMBtu, which was fairly high relative to history, but still lower than the same spread in March 2006, when the premium was $3.90 per MMBtu.
Recent Natural Gas Market Data
Working gas in storage decreased to 1,277 Bcf as of Friday, March 21, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure)). The net withdrawal from working gas storage of 36 Bcf is about 10 percent less than the 5-year average withdrawal of 40 Bcf but significantly exceeds last year’s net withdrawal of 11 Bcf for the same report week. With this week’s below-average withdrawal, the storage differential compared with the 5-year average has increased to 2.7 percent (compared with 2.3 percent for the previous week), while the current inventories fell further below the storage levels for the same week last year. Current stocks are almost 16 percent lower than for the same week last year.
The differences in storage withdrawals for the week ended March 21 compared with the 5-year average and last year reflected the heating demand in the Lower 48 States. Weather as measured by National Weather Service’s heating degree-day data was about 4 percent warmer than normal, but about 9 percent colder than last year for the comparable week (see Temperature Maps and Data). Six out of nine Census Divisions registered temperatures that were above normal for this time of year, with the highest deviations recorded in the Census Divisions along the Gulf of Mexico.
Other Market Trends:
EIA Releases Overview of the Natural Gas Industry and Markets in 2007. The Energy Information Administration (EIA) released a special report on March 26, 2008, titled Natural Gas Year-In-Review 2007, detailing the natural gas industry and markets in 2007. This summary article is based on the first complete set of EIA supply and disposition data for 2007, which was available in the February 2008 Natural Gas Monthly. According to Natural Gas Year-In-Review 2007, increased natural gas supply led to decreases in all end-use natural gas prices, with the exception of the electric power sector. The annual average wellhead price of $6.39 per thousand cubic feet (Mcf) was slightly below the $6.40 per Mcf in 2006. Marketed production increased during the year, with the highest jump occurring onshore, mostly in the Rocky Mountain Region and the Barnett Shale, which offset the sixth annual decline in Gulf of Mexico production. While marketed production increased in 2007, there was a slowdown in rigs drilling. The higher level of natural gas production was supported by the continued development of pipeline mileage and capacity. Natural gas imports increased in 2007 by 7.7 percent to 3,729 Bcf, with more than half the increase coming from liquefied natural gas (LNG) imports. As prices decreased and natural gas supply increased, natural gas consumption increased by 6.2 percent to 23 trillion cubic feet, which was the first increase since 2004. Natural gas consumption in 2007 increased between 2.1 and 9.9 percent in all sectors. Natural gas markets were characterized by lower natural gas price volatility during the year, which at 61.6 percent was the lowest level since 2002. Most of the data for this article were derived from weekly and monthly EIA products. Final data for 2007 will be released in the Natural Gas Annual 2007, which is scheduled to be released in October 2008.
Natural Gas Transportation Update:
<![if !supportLists]>· <![endif]>Destin Pipeline Company announced on March 19 that temporary operational problems are limiting its ability to process gas. The company’s Main Pass 260 line to Pascagoula Gas Plant in Jackson, Mississippi, will not be available for transportation services. While the plant is experiencing problems, Viosca Knoll Gathering System (VKGS) will be an alternate delivery point for offshore production. Destin began accepting nominations for deliveries to the VKGS delivery point for cycle 3, gas day March 19. Destin expects the Pascagoula Gas Plant should have returned to normal March 20.
<![if !supportLists]>· <![endif]>Southern California Gas Company (SoCalGas) declared an Operational Flow Order (OFO) for March 25. The company limited all nominations to the Transportation Service Access Quantity (TSAQ) in the fourth operating cycle on March 25. When injection capacity falls below 850 million cubic feet per day, confirmations of firm storage injection nominations are reduced. The pipeline asked its customers to ensure that all deliveries into the SoCalGas system are within 110 percent of expected usage. The company will assess Buy-Back charges in accordance with its Rules and Tariffs to those customers who deliver more than 110 percent of their actual gas usage on the OFO day.
<![if !supportLists]>· <![endif]>On March 21, Rockies Express Pipeline (REX) declared a force majeure event. Two of the three primary flow control valves at the REX Natural Gas Power and Light (NGPL)/Jefferson delivery point in Illinois malfunctioned on Thursday, March 20. Currently, the timeline for completing repairs is unknown. On March 22, the company announced REX will schedule quantities delivered to NGPL/Jefferson up to 550,000 decatherms per day.