Natural Gas

• The report week ended July 16 registered significant price declines at virtually all market locations in the Lower 48 States, with the largest decreases occurring in the Arizona/Nevada, California, and Louisiana trading regions. On the week, the Henry Hub spot price decreased 94 cents per million British thermal units (MMBtu) to $11.15 as of yesterday.



• Similarly, at the New York Mercantile Exchange (NYMEX), prices for all futures contracts in the 12-month strip declined between 44.6 and 69.7 cents per MMBtu. The near-month contract on Monday settled below $12-per MMBtu for the first time in 6 weeks, dropping to $11.398 per MMBtu as of yesterday.



• Natural gas in underground storage increased to 2,312 Bcf, registering a net injection of 104 Bcf. As of Friday, July 11, volumes of natural gas in storage remain 2.1 percent below the 5-year average.



• The West Texas Intermediate (WTI) crude oil price was down $1.25 per barrel on the week. However, intra-week trading of crude oil was very volatile, as the price of oil reached $145.16 on Monday, July 14 (only slightly lower than the record high of $145.31 recorded on July 3) and subsequently decreased by $10.53 per barrel in trading on Tuesday and Wednesday. As of yesterday, crude oil was priced at $134.63 per barrel or $23.21 per MMBtu.

Despite the relatively hot temperatures that blanketed much of the Lower 48 States, natural gas spot prices continued to decline this report week, registering price drops at virtually all market locations. The largest weekly regional decreases were recorded in Arizona/Nevada, where prices declined 97 cents or 8.5 percent per MMBtu, followed by California ($0.82 per MMBtu), and Louisiana ($0.81 per MMBtu). Prices in other locations in the producing areas of the Gulf of Mexico also fell on the week, with average prices yesterday in Alabama/Mississippi 79 cents lower than the previous Wednesday. In the Midwest, prices decreased despite above-normal temperatures. Continued restrictions at ANR’s Sandwich (Illinois) and St. John’s (Indiana) compressor stations and disruption of transportation services in those areas contributed to the 78-cent decrease at the ANR Mainline 7 trading location, where natural gas flows through the two compressor stations. However, high temperatures and increased space-cooling demand seemed to affect prices in the eastern half of the United States, resulting in increases at a few points in the Northeast, most notably Transco Zone 6 New York, which increased 38 cents to $13.39 per MMBtu.

The only region in the Lower 48 States where prices were virtually unchanged was the Rocky Mountains region, where the average price yesterday was $9.42 per MMBtu, 5 cents lower than last Wednesday. However, significant variability in pricing occurred during much of the week, including increases and decreases in excess of 27 cents at several market locations each day between Monday and Wednesday. As of yesterday, the average price in this region continued to be the lowest of all trading regions in the Lower 48 States. However, the basis differential has decreased significantly over the past week. For example, the basis differential between the Rockies and the Henry Hub was $3.40 per MMBtu as of last Friday, decreasing to $1.73 per MMBtu as of yesterday.

The dissipation of Hurricane Bertha and the very low likelihood that the tropical wave in the mid-Atlantic will turn into a tropical storm likely contributed to the widespread decreases in prices. However, the reprieve might only be temporary, as the most active period of the hurricane season still lies ahead. The National Hurricane Center (NHC) reported that Bertha was the longest lasting July tropical storm in history. The NHC was monitoring two formations in the southeastern and southwestern Caribbean Sea that had potential to turn into Tropical Cyclones, but are currently thought unlikely to impact the production areas of the Gulf of Mexico.

At the NYMEX, the price of the August 2008 contract decreased $0.608 per MMBtu on the week, settling yesterday at $11.398, reaching the lowest price for a near-month contract since May 20, when the June futures contract settled at $11.365 per MMBtu. Similarly, other contracts in the 12-month strip also decreased on the week, with the largest decreases occurring for delivery during the 2008-2009 heating season. The average price for the heating season contracts decreased 69 cents per MMBtu on the week to $12.210. With only 16 weeks left in the injection season and current inventories that are both below last year’s and the 5-year average level, the more than $1 per MMBtu premium provides a significant incentive for suppliers to inject natural gas into storage.

On the week, the price of the 12-month NYMEX strip decreased 60 cents per MMBtu to $11.506. The 12-month strip is currently trading at a premium to the Henry Hub spot price of 36 cents, which has diminished over the last few weeks. The price movement in the natural gas market appeared to follow the decreasing price pattern in the crude oil market.

Working gas in storage totaled 2,312 Bcf as of Friday, July 11, which is 2.1 percent below the 5-year average inventory level for the report week, according to EIA’s Weekly Natural Gas Storage ReportWeekly Natural Gas Storage Report (see Storage Figure). As of July 11, stocks were 361 Bcf below the 2,673 Bcf in storage at this time last year, and were also below the 5-year average by 49 Bcf. Net injections into working gas storage totaled 104 Bcf, which were about 37 percent higher than last year’s net injection of 76 Bcf and 25 percent higher than the 5-year average net injection of 83 Bcf. This week’s net injection marks the second highest net injection of the season, second only to the 105-Bcf injection for the report week ended May 30. Furthermore, it is the first time in 5 weeks that the current net injection exceeded the 5-year average.

The higher than average injections occurred in a week when temperatures exceeded normal levels on average, but were below normal in key market areas (see Temperature Maps and Data). Cooling degree-days were 7 percent above normal levels on average in the Lower 48 States, exceeding normal levels in the New England, Middle Atlantic, East South Central, Mountain, and Pacific Census Divisions. However temperatures in the key gas consuming areas of the other four Census Divisions were below normal. These other regions include the major consuming markets of the Midwest, Texas, Louisiana, and Florida, among others. The less-than-normal demand for cooling-load purposes likely contributed to the above average storage injection.

President Bush Lifts the OCS Drilling Moratorium. On July 14, 2008, President George W. Bush lifted the Outer Continental Shelf (OCS) drilling ban that had been in place since 1990, when then President George H.W. Bush issued a Presidential Directive that enacted a blanket moratorium until 2000 on all unleased areas offshore Northern and Central California, Southern California except for 87 tracts, Washington, Oregon, the North Atlantic coast, and the Eastern Gulf of Mexico coast. Separate from the annual moratoria in appropriations legislation, this directive meant that no leasing or pre-leasing activities were allowed to occur in these areas during the entire period. In 1998 President Clinton extended the moratorium through 2012. Prior to 1990, the first OCS moratorium was enacted as part of the fiscal year 1982 Interior Appropriations Bill. It covered 736,000 acres off the coast of California. From 1982 to 1992, Congress supported annual moratoria on six other areas through the Interior Appropriations Bill. Other annual moratoria, which only covered the year in which they were passed, followed between 1983 and 1990. The lifting of the drilling ban by the President, however, does not completely remove restrictions on drilling in the areas of the OCS. The United States Congress would also have to lift its 27-year ban to allow for exploration and production off the east and west coasts, as well as in the restricted areas of the Gulf of Mexico. According to the latest Minerals Management Services’ (MMS) estimates, currently unavailable areas of the Lower 48 States OCS hold 76.47 trillion cubic feet (Tcf) of natural gas and 17.84 billion barrels (bbl) of crude oil in undiscovered technically recoverable resources. Most of the natural gas is estimated to be off the Atlantic coast, where nearly 37 Tcf is believed to be situated. This compares with estimated currently available OCS resources in the Gulf of Mexico that total 209.8 Tcf of natural gas and 40.9 billion bbl of crude oil, according to MMS. In 2006, the Federal OCS produced 2.9 Tcf of natural gas, while natural gas reserves equaled 14.55 Tcf, according to MMS. For more information on legislation and regulations on offshore energy development, see the EIA report, Overview of U.S. Legislation and Regulation Affecting Offshore Natural Gas and Oil Activity.

• After finding damage to a compressor unit at its compressor station in Boise, Idaho, Northwest Pipeline Corporation has initiated emergency repairs. The repair work will require reducing the capacity of the pipeline through this unit from 499,000 MMBtu per day to 403,000 MMBtu per day, Northwest said.



• Citing the need for unplanned repairs at a compressor station in Patterson, Louisiana, ANR Pipeline Company on Wednesday began restricting deliveries between the Patterson and Eunice compressor station in the pipeline’s Southeast Gathering Area in Louisiana. Capacity has been reduced to 507,000 MMBtu per day through Monday, July 21. 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.



• ANR has also begun maintenance at its compressor station in Greenville, Mississippi. The repair work will require reducing capacity of its Southeast Mainline by 300,000 MMBtu per day through Monday. Based on current nominations, it is anticipated that the reduction may result in the curtailment of some interruptible services. During the repairs, the Southeast Mainline will have a capacity of about 1,000,000 MMBtu per day.

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.