Natural Gas

Overview (Wednesday, April 16, to Wednesday, April 23)

Released: April 24, 2008

Next release: May 1, 2008

·     Spot prices at all market locations (outside the Rocky Mountain Region) are trading above $9 per million Btu (MMBtu), with a majority of the points registering prices in excess of $10 per MMBtu.

·     At the New York Mercantile Exchange (NYMEX), the futures contract for May delivery at the Henry Hub settled yesterday (April 24) at $10.781 MMBtu, continuing the trend of week-over-week increases for the fifth consecutive week.

·     Natural gas in storage was 1,285 billion cubic feet (Bcf) as of April 18, which is 1.9 percent below the 5-year average (2003-2007).

·     The spot price for West Texas Intermediate (WTI) crude oil increased $4.48 per barrel on the week to $119.28 per barrel or $20.57 per MMBtu.

 

 

Prices:

Although spring-like temperatures finally arrived across much of the Lower 48 States, supply issues dominate the markets.  As of yesterday, prices at nearly every trading location had increased on the week between 2 and 37 cents per MMBtu. The Henry Hub spot price increased 22 cents to $10.33 per MMBtu. The average regional spot price in Louisiana was $10.26 per MMBtu, about 24 cents higher than the previous Wednesday’s price.  Prices in the Northeast yesterday averaged $10.95 per MMBtu, the highest average regional price in the Lower 48 States.  Five trading locations in the Northeast registered prices exceeding $11 per MMBtu, including the price ($11.07 per MMBtu) for the Algonquin citygate, which refers to natural gas delivered into high consumption areas of New England, and Transco Zone 6 New York ($11.01 per MMBtu).  The elevated prices reflect recent supply conditions.  As of yesterday, Independence Hub production in the offshore Gulf of Mexico remained shut-in for the 15^th consecutive day. Enterprise Products Partners reported that repairs are expected to be completed within the originally reported schedule of up to 4 weeks, after which production at the hub should resume. Liquefied natural gas (LNG) imports continue below last year’s volumes, with an average of 0.9 Bcf per day imported during the first 3 weeks of April, less than one-third of the 3.2 Bcf per day imported during April 2007.

 

In other areas of the country, the week also was marked by increasing prices. The average price for California markets reached $10.11 per MMBtu yesterday, increasing 31 cents since last Wednesday which exceeded increases in all other trading regions of the Lower 48. Prices rose by about 25 cents this week in the cooling demand regions of the South, particularly Florida and the Southwest, where recent temperatures have led to an increase in cooling load. 

 

The Rocky Mountains was the only region to register price declines this past week. On average, prices fell by 43 cents per MMBtu, to a regional average of $8.69 per MMBtu. The largest decrease on the week was registered at the El Paso Bondad location, which fell by $1.37 or 15 percent per MMBtu to $7.70 per MMBtu. The El Paso Bondad price was the lowest of all markets in the Lower 48.

 

 

 

 

At the NYMEX, the price of the futures contract for May delivery at the Henry Hub increased to $10.781 per MMBtu yesterday, increasing about 35 cents or 3.3 percent on the week. The contract price increased by 17 cents in Tuesday’s trading, which marks the third increase in the four most recent trading sessions.  The refill season contracts (May-October) are trading at an average of $11.068 per MMBtu, which is $3.197 per MMBtu or 41 percent higher than the refill-season strip a year ago.

 

Natural gas futures contracts for delivery in the next 12 months increased by as much as 5.8 percent. The price of the 12-month futures strip (May 2008 through April 2009) increased 47 cents on the week to $11.308 per MMBtu. The January and February 2009 contracts ended the week at $12.086 and $12.046 per MMBtu.  Yesterday marked the second time this week that the January contract settled above $12 per MMBtu, with the previous occurrence on Monday. Monday marked the first time that a heating season contract exceeded the $12 per MMBtu mark since December 2005.

 

The relatively high prices for futures contracts over the next 12 months reflect the uncertainty concerning current and potential demand and supply conditions during the refill season. The problems of offshore production and limited LNG imports have raised concerns about market conditions in the near months.  Also, a recent Bentek Energy LLC report indicates that the 2008 Pacific Northwest snowmelt is delayed significantly compared with last year, which could increase natural gas consumption for electric power generation in the Northwest until the hydroelectric generation increases. The hydropower plants generate up to 60 percent of Pacific Northwest electricity. Additionally, high cooling demand or additional supply disruptions during the summer could create further upward pressure on prices. The most recent hurricane outlook from Colorado State University indicates an active hurricane season is expected in 2008.  

 

Recent Natural Gas Market Data

 

 

Storage:

Working gas in underground storage increased to 1,285 Bcf as of April 18, widening the difference from the 5-year average inventory level to 1.9 percent, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). This week’s net injection of 24 Bcf is 47 percent lower than the 5-year average injection of 46 Bcf, but it sharply contrasts with last year, when there was no net change to natural gas stocks in storage. This week’s injection reduced the differential to last year’s volume to 274 Bcf or 17.6 percent.

 

The lower-than-average injection this week corresponds to the colder–than-normal temperatures that were recorded during the week ended April 18. Weather for the country as a whole was colder than normal, with heating degree-days (HDDs) about 27 percent higher than normal. Actual temperatures in the Lower 48 States were about 4 degrees cooler than last year for the same week (see Temperature Maps and Data). All Census Divisions, with the exception of Middle Atlantic, recorded cooler-than-normal temperatures. The West South Central Census Division measured average temperatures that were 8 degrees colder than normal, and the East North Central, West North Central, and East South Central Census Divisions all had temperatures 7 degrees colder than normal.

 

 

 

 

Other Market Trends:

MMS Issues Notice to Determine Competitive Interest in Nominated Areas. Minerals Management Service designated five areas in Federal waters on the Outer Continental Shelf (OCS) as priority areas for alternative energy research, including areas offshore New Jersey, Delaware, Georgia, Florida, and California. MMS is proposing limited and temporary leases in these areas for data collection and technology testing related to wind, wave, and ocean current development. The choice of these five areas is a result of the comments MMS received in response to its November 2007 Federal Register notice, which invited comments concerning the authorization of activities on the OCS involving the installation of data collection facilities. MMS received more than 40 nominations for alternative energy research projects, 16 of which would be situated in the five priority areas.

 

 

Natural Gas Transportation Update:

·     Columbia Gas Transmission Company announced on April 17 that firm and interruptible service volumes would not be available at the Fortuna receipt point meter in New York. The curtailment of flows was the result of integrity management work that needed to be performed on the company’s Line A-5 in Steuben County, New York. The outage ended on Wednesday, April 23.

·     ANR Pipeline Company began unplanned engine repairs on Friday, April 18, at the Shelbyville compressor station along the SE Mainline in Indiana. The total compressor station capacity will be reduced by 280 million cubic feet between April 18 and May 2. Based on current nominations, ANR reported that the capacity reduction might result in the curtailment of interruptible and firm secondary nominations.

·     As a result of an unplanned engine failure, ANR made repairs to the Sandwich compressor station in Illinois between Saturday, April 19, and Tuesday, April 22. During the outage at the compressor station, ANR was accepting only firm primary nominations through the Sandwich East segment. As of Tuesday, ANR had lifted all capacity restrictions.

·     Northwest Pipeline GP announced that primary nominations through the Kemmerer compressor station were about 700,000 decatherms (Dth) for gas day Thursday, April 17. Northwest asked its shippers who might be subject to a Kemmerer realignment operational flow order (OFO) to reduce primary nominations below the operational capacity of 680,000 Dth. Failure to reduce nominations would necessitate the issuance of an OFO.

·     Tennessee Gas Pipeline Company announced on April 22 that emergency repairs need to be made to its Compressor Station 409A near Alamo, Texas. The repairs were necessitated by a reliability issue with of the compressor station units. Tennessee estimated that the unit will be available by May 1. The pipeline does not anticipate any restrictions on current scheduled volume levels, however restrictions might be necessary for some of the nominations pathed through the station.

 

Short-Term Energy Outlook