for week ending May 7, 2008 | Release date: May 8, 2008 | Previous weeks
Overview (Wednesday, April 30, to Wednesday, May 7)
Released: May 8, 2008
Next release: May 15 2008
·
Since Wednesday,
April 30, natural gas spot prices increased at most markets in the Lower 48
States. Prices at the Henry Hub rose 27
cents per million Btu (MMBtu), or about 2.5 percent, to $11.08 per MMBtu.
·
At the New York
Mercantile Exchange (NYMEX), the futures contract for June delivery at the
Henry Hub settled yesterday (May 7) at $11.327 per MMBtu, rising 48 cents or
about 4 percent since Wednesday, April 30.
·
Natural gas in
storage was 1,436 billion cubic feet (Bcf) as of May 2, which is 1 percent
below the 5-year average (2003-2007), following an implied net injection of 65
Bcf.
·
The spot price
for West Texas Intermediate (WTI) crude oil increased $9.86 per barrel on the
week to $123.56 per barrel or $21.30 per MMBtu.
Natural gas spot prices increased on
the week (Wednesday-Wednesday) at most market locations, with intraweek spot
market trading characterized by price decreases through Friday, May 2, and
increases beginning on Monday, May 5. The softness in spot
prices late last week likely can be attributed to moderating temperatures and
softening industrial demand for natural gas over the weekend. While temperatures were relatively mild
throughout most of the Lower 48 States, other demand/supply factors contributed
to the price rally since Monday, May 5.
Key demand factors contributing to the price increases included rising
crude oil prices, the resumption of industrial load, injection demand for natural
gas, and shutdowns of nuclear facilities for maintenance this week. Key supply factors included the ongoing
production outage at the Independence Hub in the Gulf of Mexico, and the
limited imports of liquefied natural gas (LNG).
Price increases since Monday, May 5, more than offset the declines made
in trading heading into last weekend.
The spot price at the Henry Hub
averaged $11.09 per MMBtu on Tuesday, May 6, reaching its highest level since
December 23, 2005. In addition, to reaching the highest
level since 2005—the year Hurricane Katrina hit the Gulf Coast—the spot price
at the Henry Hub reached the highest level ever recorded during the month of
May.
On a regional basis, prices rose in
many regions of the Lower 48 States by 13 to 27 cents per MMBtu, or about 1 to
3 percent, since Wednesday, April 30. The largest price increases
primarily occurred in the producing areas of South Texas, Louisiana, and in the
Midwest region, climbing 23 to 27 cents per MMBtu.
Since last Wednesday, April 30,
prices fell in the western regions of the Lower 48 States, including West
Texas, Midcontinent, Rocky Mountains, California, and Arizona/Nevada, where
prices declined by 23 to 86 cents per MMBtu, or 2 to 5 percent.
Prices in the Arizona/Nevada region and at the Southern California
border fell between 83 and 89 cents per MMBtu, following a high-linepack
operational flow order (OFO) issued by Southern California Gas Company for
Wednesday and Thursday, May 7 and 8. In contrast to the Southern California
border, prices in northern California remained relatively unchanged since last
Wednesday April 30.
Production at the Independence Hub natural gas
platform at Mississippi Canyon Block 920 in the deepwater Gulf of Mexico has been
shut-in since April 9, 2008, as a result of a leak on the Independence Trail
export pipeline. The Independence Hub can
process approximately 1 Bcf of natural gas capacity per day, which is about 10
percent of the natural gas produced in the Gulf of Mexico. According
to Reuters, natural gas production at the Independence Hub is expected to
resume by mid-May. The resumption of
natural gas production at the Independence Hub should ease natural gas prices.
At the NYMEX, the price of the contract
for June 2008 delivery increased 48 cents per MMBtu since last Wednesday, April
30, while futures prices for natural gas delivery through May 2009 posted
similar increases, climbing between 47 and 54 cents per MMBtu.
Prices for the 12-month futures strip (June 2008 through May 2009)
averaged $11.578 per MMBtu as of Wednesday, May 7, climbing about 50 cents per
MMBtu, or about 4.6 percent, since last Wednesday, April 30. Contract prices for delivery in successive
months in the 12-month strip exhibited a pattern of increasing prices, peaking
with the January 2009 contract at $12.445 per MMBtu.
On Wednesday, May 7, the 12-month
futures strip (June 2008 though May 2009) traded at a premium of 50 cents per
MMBtu relative to the Henry Hub spot price. Contracts for delivery next winter (December 2008
through March 2009) traded at an average premium of $1.21 per MMBtu relative to
the spot price. Price differentials of
this magnitude provide suppliers significant incentives to inject natural gas
into storage.
Recent Natural Gas Market Data
Working gas in storage increased to
1,436 Bcf as of Friday, May 2, according to EIA’s Weekly Natural Gas Storage
Report (see Storage Figure). The implied
net injection of 65 Bcf into working gas storage significantly contrasts with
the 5-year average net injection of 73 Bcf and last year’s net injection of 94
Bcf for the same report week.
The relative size of the net injection
likely reflected the weather in the Lower 48 States and the price differentials
between the NYMEX futures prices and the current Henry Hub spot price. The
National Weather Service’s degree-day data . (see Temperature Maps and Data) indicate
that all Census Divisions in the Lower 48 States posted heating degree-days
significantly above normal levels, except for the Pacific Division, and small
levels of cooling degree-days. The
economic incentives for storing natural gas for next winter are considerably
less than last year, when the differential between the Henry Hub spot price and
the future contract prices for December 2007-February 2008 was approximately
$2.10 per MMBtu. This level is well
above the current difference of $1.21 per MMBtu.
At 1,436 Bcf, working
gas in storage is at the lowest level for this time of year since May 14, 2004,
when working gas in storage was 1,388 Bcf. As of May 2, working gas stocks were 11 Bcf below the
5-year average and 284 Bcf below the level reported last year at this time.
Other Market Trends:
EIA Releases May 2008 Short-Term Energy Outlook. The Energy Information Administration’s (EIA) latest Short-Term Energy Outlook (STEO)
projects that the Henry Hub spot price will average about $9.70 per thousand cubic
feet (Mcf) in 2008 and $9.40 per Mcf in 2009. Furthermore, according to the May
6 report, the April 2008 price averaged $10.49 per Mcf, which was 74 cents per
Mcf more than the average March spot price. The relative price increase was the
result of continued cool weather as heating degree-days were 6 percent higher
than normal in April, with lower imports of LNG, and higher oil prices, and
concerns about the adequacy of inventories. Uncertainty over electric power
sector demand for natural gas during the summer and the possibility of
hurricane-related supply disruptions could impact spot prices in the coming
months. Total natural gas consumption is expected to grow by 1.4 percent in
2008, and then increase by another 0.5 percent in 2009. The residential and commercial sectors are
expected to lead consumption growth in 2008 as a result of the projected 5.4
percent growth in heating degree-days compared with 2007. Marketed natural gas production is projected
to increase by 4.6 percent in 2008 and then decrease by 1.1 percent in
2009. Despite the recent outage at the
Independence Hub platform, production from the Federal Gulf of Mexico is
expected to increase by 4.2 percent in 2008.
Imports of liquefied natural gas (LNG) during the first 4 months of 2008
are estimated to be about 115 billion cubic feet (Bcf), which is much lower
than the 283 Bcf imported during the same period last year. Recent delays in bringing new liquefaction
projects to full operational capacity, as well as current high demand in other
parts of the world, are expected to continue constraining LNG shipments to the
United States. As of April 25, 2008,
working natural gas in storage was 1,371 Bcf, which was 3 Bcf lower than the
5-year average and 255 Bcf lower than the level during the corresponding week
last year.
MMS Releases Report on Oil and Gas Industry
Activities in the Deepwater Gulf of Mexico. In its eighth biennial report on deepwater exploration, development, and
production activities in the Gulf of Mexico (GOM), the Minerals Management
Service (MMS) found that the future of deepwater GOM exploration and production
remains very promising. The deepwater (1,000 feet or more) continues to be a
very important part of the total GOM production, providing approximately 72
percent of the oil and 38 percent of the natural gas in the GOM region. At the
end of 2007, there were 130 producing projects in the deepwater GOM, up from
122 at the end of 2006. In fact, 15 deepwater fields, including Atlantis,
Shenzi, and several associated with Independence Hub, began production last
year. When Independence Hub reaches full capacity, it is expected to constitute
more than 10 percent of the total GOM gas production. According to MMS, factors
contributing to the increase in deepwater activity include several key
discoveries (including recent discoveries in the Lower Tertiary Trend), the
recognition of high production rates, the evolution of development
technologies, and a rise in oil and gas prices. Deepwater oil production rose
about 820 percent and deepwater gas production increased about 1,155 percent
from 1992 to 2006. The complete report can be accessed at http://www.gomr.mms.gov/PDFs/2008/2008-013.pdf.
GAO Releases Report on Implications of Switching from
Coal to Natural Gas at Electric Power Plants. The Government Accountability Office (GAO) released a
new report to Congress on May 1 in response to lawmakers’ request for
information on costs and consequences of shifting coal-fired power plants to
natural gas. According to the report, the ability of coal-fired generators in
the United States to switch to natural gas is limited by high natural gas
prices, supply constraints, and existing infrastructure. In addition,
increasing the use of natural gas for electricity generation could result in
adverse economic consequences. Fuel switching to natural gas also poses
challenges related to existing infrastructure, including limited pipeline and
storage capacity and technical and regulatory barriers to the conversion of
existing coal plants. Large-scale fuel switching would require substantial
investments in pipeline and storage capacity and new terminals to process
imported natural gas. All of these factors would require regulatory approval.
Because of technical and other issues, large-scale shifting of demand for
electricity production from coal to natural gas would increase electricity
prices, residential and commercial heating costs, and fuel costs for certain
industries that consume large quantities of natural gas, including chemical and
fertilizer manufacturers. The complete report can be accessed at http://www.gao.gov/new.items/d08601r.pdf.
Natural Gas
Transportation Update:
·
Northern Natural Gas Company issued a force majeure on the A mainline
near Spearman, Texas, on May 5 as a result of a leak on the pipeline. The line
needed to be isolated, inspected and repaired, which the company expected to
complete by the end of the gas day May 8. Turkey Gathering and Eagle Rock
Cargray Plant in Texas are shut in while repairs are being completed.
·
ANR Pipeline Company announced on Monday, May 5, that gas flow at Roberts
Eagle Rock receipt point in Texas was shut in, because objectionable liquids
were injected into the ANR system near the Gageby Creek compressor station in
Texas. Deliveries in the area have not been affected, but ANR continues to
investigate its impact on ANR operations.
·
As a result of high temperatures in Florida, Mississippi River
Transmission implemented a system protection warning (SPW) on May 5 that will
remain in effect until further notice. Because of the SPW, the pipeline will
not schedule any volumes that result in daily long imbalance positions.
·
The Federal Energy Regulatory Commission issued an extension to Rockies
Express Pipeline (REX) to complete construction of the REX West leg of the
pipeline by June 30, 2008. The extension was granted so that the pipeline could
complete review and finalize documentation of the recently completed
facilities.
·
Southern California Gas Company issued a high-linepack operational flow
order (OFO) for the intraday 1 nomination cycle for Wednesday and Thursday, May
7-8. The company announced that it will assess buy-back charges to customers
who deliver more than 110 percent of their actual usage while the OFO is in
effect.
·
Southern Natural Gas Company reported that a dive boat has confirmed a
leak on the 14-inch Main Pass 107 Pipeline upstream of the Toca compressor
station offshore Louisiana, and that a repair plan has been developed and
approved. Based on the information available, the pipeline expects that the
line will return to service on Sunday, May 11. However, weather forecasts
indicated inclement weather in the area that could affect the service date.