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Natural Gas Weekly Update Archive

for week ending July 4, 2008  |  Release date:  July 3, 2008   |  Previous weeks

Released: July 3, 2008
Next Release: July 10, 2008


  • Since Wednesday, June 25, natural gas spot prices increased at most markets in the Lower 48 States, with prices rising up to 5 percent during the period. Prices at the Henry Hub increased 55 cents per million Btu (MMBtu), or about 4 percent, to $13.31 per MMBtu.

  • At the New York Mercantile Exchange (NYMEX), the futures contract for August delivery at the Henry Hub settled yesterdayat $13.389 per MMBtu, rising 52 cents or about 4 percent since Wednesday, June 25.

  • Natural gas in storage was 2,118 billion cubic feet (Bcf) as of June 27, which is about 3 percent below the 5-year average (2003-2007), following an implied net injection of 85 Bcf.

  • The spot price for West Texas Intermediate (WTI) crude oil increased $9.82 per barrel on the week to $143.74 per barrel or $24.78 per MMBtu, posting a new record level yesterday (July 2).

NYMEX Natural Gas Futures Near-Month Contract Settlement Price, West Texas Intermediate Crude Oil Spot Price, and Henry Hub Natural Gas Spot Price Graph

More Summary Data

Natural gas spot prices increased on the week (Wednesday-Wednesday) at most market locations, climbing up to 66 cents per MMBtu, or as much as 5 percent. The price increases over the period likely can be attributed to continued summer heat sustaining cooling demand for natural gas, rising crude oil prices, and ongoing concerns about the sufficiency of natural gas supplies. While price hikes were widespread throughout much of the Lower 48 States, several markets posted declines over the same period, including markets in the Midcontinent and Florida, and selected markets in West Texas, Louisiana, California, and the Rocky Mountains region.

On a regional basis, prices exhibited considerable variability, increasing in most regions of the Lower 48 States with price hikes ranging between 4 and 46 cents per MMBtu. The largest regional price hikes principally occurred in the producing areas along the Gulf of Mexico with prices in South and East Texas, Louisiana, and Alabama/Mississippi gaining 43 to 46 cents per MMBtu, or about 3.5 percent, since last Wednesday, June 25. Prices in the Northeast and Midwest regions rose about 3 percent on average, climbing 43 cents per MMBtu in both regions. Price increases out west were much less pronounced with the Arizona/Nevada, Rocky Mountains, and California regions increasing by 18, 8, and 4 cents per MMBtu on average, respectively, since last Wednesday, June 25. The Midcontinent, Florida, and West Texas regions posted declines of 20 to 24 cents per MMBtu.

Prices at the Henry Hub exceed levels of the past winter, as crude oil prices have climbed to record-high levels. During the 2007-2008 heating season, the Henry Hub price reached its peak level of $9.86 per MMBtu for the heating season on March 31. Following a brief decline in early April 2008, the Henry Hub price has exceeded $9.86 per MMBtu consistently, exhibiting an upward trend since mid-April. At $13.31 per MMBtu, the Henry Hub price is at its highest level since December 21, 2005, when it reached $13.55 per MMBtu. Since March 31, the Henry Hub price has risen by $3.45 per MMBtu, or about 35 percent, while the WTI crude oil price has increased by $42.20 per barrel, or 42 percent, climbing to its new record level of $143.74 per barrel in trading Wednesday, July 2. Crude oil projects, with prices at these levels, compete with natural gas prospects for scarce production resources, including drilling rigs and labor. Additionally, petroleum product prices increase, which lessens price competition in natural gas markets. These effects on both sides of the market put upward pressure on natural gas prices. Historically, spot prices at the Henry Hub have tended to peak during the winter heating season each year, with injection season peaks falling well short of the highest levels of the preceding heating season. If the Henry Hub spot price peaks during this injection season, it will be for the first time since 1999 (excluding October 2005 prices, which were in the immediate aftermath of Hurricanes Katrina and Rita).

Spot Prices

At the NYMEX, the prices for natural gas delivery contracts through July 2009 climbed between 36 and 53 cents per MMBtu since Wednesday, June 25. Prices for the 12-month futures strip (August 2008 through July 2009) averaged $13.147 per MMBtu as of Wednesday, July 2, climbing by roughly 45 cents per MMBtu, or about 4 percent. Contracts for delivery next winter (December 2008 through March 2009) traded at an average premium of 78 cents per MMBtu relative to the spot price. Price differentials of this magnitude provide suppliers an economic incentive to inject natural gas into storage. However, the magnitude of the differential has decreased since earlier in the season with the increase in the Henry Hub spot price relative to the NYMEX prices, which suggests that the incentive to inject has weakened and is less than at this time last year. The futures contract for July 2008 natural gas delivery at the Henry Hub expired in trading on Thursday, June 26, at $13.105 per MMBtu, climbing $1.63 per MMBtu, or 14 percent, during its tenure as the near-month contract.

Wellhead Prices Annual Energy Review
More Price Data

Working gas in storage increased to 2,118 Bcf as of Friday, June 27, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection of 85 Bcf into working gas was 1 Bcf below the 5-year average net injection of 86 Bcf and was 1 Bcf above last year’s net injection of 84 Bcf for the same report week. At 2,118 Bcf, working gas in storage is now 381 Bcf below last year’s level at this time and 57 Bcf below the 5-year average. This shortfall in working gas storage levels contributes to concerns about the sufficiency of supplies for the upcoming heating season.

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 the Lower 48 States on average posted cooling degree-days 3 percent above normal levels, but nearly 5 percent below last year’s level. Cooling degree-days were at, or short of, normal levels in the northern and eastern Census Divisions, including all Divisions east of the Mississippi and the West North Central Division. Meanwhile, temperatures in the West South Central, Mountain, and Pacific Census Divisions were below normal levels. The summer-like temperatures, especially warm in the western Lower 48 States, indicate some cooling-related demand for natural gas that limited the size of the net addition to storage. Additionally, the economic incentives to store natural gas for next winter are considerably less than last year, when the differential between the Henry Hub spot price and the futures contract prices for December 2007-February 2008 was approximately $2.10 per MMBtu.

Storage Table

More Storage Data
Other Market Trends

Trends in Natural Gas Drilling. The number of natural gas rigs drilling reached 1,530 for the week ended June 27, 2008, which was a record high. This is the largest number of natural gas rigs drilling since August 31, 2007, when rigs hit 1,523. For the week ended June 27, natural gas rigs drilling were 2.8 percent higher than the rigs drilled at the same time last year and about 13 percent greater than the level for the same week by in 2006. Natural gas rigs have increased since January 18, 2008, when it hit a relative low of 1,401. Prior to January, gas rigs drilling had experienced a slowdown in response to lower natural gas prices, which had occurred in the prior 10 months. Generally, the rigs drilling respond to spot prices with a lag. For example, natural gas prices began the most recent upward trend in September 2007 and the turnaround in rigs drilling for natural gas came in January 2008 (see Natural Gas Rigs and Spot Prices Graph).

EIA Releases Special Report on LDCs and Transmission Pipelines. The Energy Information Administration (EIA) released the report Distribution of Natural Gas: The Final Step in the Transmission Process, on June 27, 2008. This report analyzes the role of local distribution companies (LDCs) and transmission pipelines in delivering natural gas supplies to end users, focusing on the years 1996 through 2006. The bulk of the natural gas consumed by end users is delivered by LDCs. LDC operations in 2006 accounted for approximately 60 percent of the 19.9 Tcf of natural gas delivered to the residential, commercial, industrial, and electric power generation sectors. The additional 40 percent of natural gas delivered to end users arrives directly from the main pipeline systems, which supply about 98 percent of the natural gas consumed by electric power generation facilities. The report also examines the changing dynamics of natural gas end-use markets. As a result of market restructuring in the past 10 years, the natural gas end-use market has changed significantly. During that time natural gas as a fuel for electric power generation increased significantly while its use in all other sectors decreased. In 2006, the total volume of natural gas delivered to electric power generation users was on the verge of overtaking industrial end use for the first time. Furthermore, there is a trend toward large-volume users such as electric power generation plants and large industrial users receiving greater portions of their supplies from mainline natural gas transmission pipeline companies rather than the traditional LDC. Between 2000 and 2006, deliveries of natural gas to ultimate end users declined by 6 percent from 21.2 Tcf to 19.9 Tcf. This decline occurred even as the number of natural gas end users increased by almost 6 million, or 9 percent, during the period, as residential, commercial, and industrial users responded to higher natural gas prices by using less natural gas.

Natural Gas Transportation Update

  • Citing an outage at its compressor station in Oakland, Iowa, Northern Natural Gas Company on Wednesday, July 2, reduced throughput on a portion of its mainline. Capacity through the Oakland Compressor Station is reduced by about 60,000 MMBtu per day to 1,340,000 MMBtu per day until further notice.

  • Mississippi River Transmission Corporation on Wednesday warned shippers that it will not schedule any volumes that result in a shipper having a daily imbalance over contracted capacity, and will not allow shippers to schedule volumes to make up for past shortfalls in deliveries. The policy will stay in place through the July 4 weekend, during which time the pipeline is expected to experience operating conditions characterized by low demand and high linepack.

  • Citing high line pressures, ANR Pipeline Company on Wednesday said total receipt capacity in its Viking-Marshfield segment in Wisconsin will be being limited to 250 MMcf per day as of Thursday, July 3, and continuing through Monday, July 7. Based on current nominations, ANR said it anticipated that the reduction would result in the curtailment of some volumes that are being transported with interruptible contracts.

  • Pacific Gas and Electric (PG&E) Company on Wednesday issued a system-wide notice initiating penalties on shipper volumes exceeding nominations on PG&E’s California Gas Transmission. Citing a trend of high inventories held on the pipeline over the past few years during the July 4 weekend, PG&E said system inventories were again approaching upper operational limits. PG&E set penalties at $1 per Dth for positive daily imbalances exceeding 5 percent tolerance on Wednesday, July 2, but loosened the tolerance to 13 percent starting Thursday, July 3.

See Weekly Natural Gas Storage Report for additional Natural Gas Storage Data.
See Natural Gas Analysis for additional Natural Gas Reports and Articles.
See Short-Term Energy Outlook for additional Natural Gas Prices, Supply, and Demand.