for week ending September 3, 2008 | Release date: September 4, 2008 | Previous weeks
Overview | Prices | Storage | Other Market Trends | Natural Gas Transportation Update |
Natural gas spot prices decreased on the week (Wednesday-Wednesday) at all market locations, with declines of up to $2.85 per MMBtu. Prices fell heading into the Labor Day holiday weekend, despite the countervailing effects of multiple hurricane threats and shut-in production in the Gulf of Mexico of about 7 Bcf per day. Prices declined following the release of the EIA Weekly Natural Gas Storage Report on Thursday, August 28, which reported an implied net injection of 102 Bcf, significantly exceeding consensus market expectations for the week. Additional factors contributing to the price declines include relatively light cooling demand for natural gas, falling crude oil prices, and a robust natural gas supply situation. As the threat to natural gas supplies from Hurricane Gustav passed, and with Tropical Storm Hanna and Hurricane Ike increasingly appearing more likely to threaten natural gas demand centers along the East Coast, prices continued to decline since Tuesday, September 2.
The smallest regional average price declines occurred in the Florida region with prices falling 44 cents per MMBtu, or 4 percent. The Northeast region also posted relatively modest declines since last Wednesday, as prices fell about 96 cents per MMBtu or 11 percent on average. Western markets, including the Rocky Mountains, Midcontinent, Arizona, California, and West Texas regions, generally experienced the largest price declines since last Wednesday, August 27, with prices falling more than $1.47 per MMBtu on average. With the Rockies Express Pipeline experiencing a major outage (see Natural Gas Transportation Update) beginning yesterday, the Rocky Mountains region posted the largest decline, falling $1.93 per MMBtu, or 35 percent since last Wednesday.
As a result of the declines since last Wednesday, prices are now at their lowest levels since February. At $7.26 per MMBtu, the Henry Hub spot price for natural gas is at its lowest level since December 28, 2007, and $6.05 below the level reported for trading on July 2, which was the highest level this year. However, despite the declines since last Wednesday, prices at the Henry Hub remain at historically high levels for this time of year.
As a result of Hurricane Gustav, Sabine Pipeline LLC declared a force majeure at Henry Hub, the major natural gas interconnection at Erath, Louisiana. The force majeure took effect on Sunday, August 31, in anticipation of Hurricane Gustav. No damage to the pipeline or production infrastructure was sustained. Service and trading at the Henry Hub were restored on Wednesday, September 3 (see Natural Gas Transportation Update). This is the first time that the operators at the Henry Hub have declared a force majeure since Hurricane Katrina struck Louisiana in September 2005.
At the NYMEX, the prices for natural gas delivery contracts through September 2009 fell between $0.772 and $1.344 per MMBtu since Wednesday, August 27. Prices for the 12-month futures strip (October 2008 through September 2009) averaged $8.17 per MMBtu as of Wednesday, September 3, falling by roughly 98 cents per MMBtu, or about 11 percent. Contracts for delivery next heating season (November 2008 through March 2009) traded at an average premium of $1.13 per MMBtu relative to the spot price. Price differentials of this magnitude provide suppliers an economic incentive to inject natural gas into storage.
Working gas in storage increased to 2,847 Bcf as of Friday, August 29, according to EIA’s Weekly Natural Gas Storage Report (Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection of 90 Bcf into working gas was 31 Bcf greater than the 5-year average net injection of 59 Bcf and was 52 Bcf above last year’s net injection of 38 Bcf for the same report week. At 2,847 Bcf, working gas in storage is now 148 Bcf below last year’s level at this time and 102 Bcf above the 5-year average. This is the eighth week in a row that injections into working gas in storage matched or exceeded the 5-year average. This is the second-largest weekly net increase to storage during August since weekly data collection began in 1994, and is below only the net injection of 102 Bcf reported last Thursday, August 28, for the week ending August 22. The shortfall with respect to last year’s level peaked on July 4, 2008, at 389 Bcf.
Relatively moderate temperatures in the Lower 48 States contributed to larger than average net injections into working gas storage. 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 27 percent below last year’s level. On a regional basis, cooling degree-days exceeded normal levels in only the East North Central, East South Central, and Pacific Census Divisions, but fell significantly below normal levels elsewhere in the Lower 48 States. Compared with last year at this time, cooling degree-days were significantly below last year’s levels in all Census Divisions in the Lower 48 States.
Natural Gas and Crude Oil Production Shut-ins in the Gulf of Mexico. The Minerals Management Service (MMS) of the Department of the Interior reported that a significant portion of platforms and rigs in the path of Hurricane Gustav in the Gulf of Mexico (GOM) remained shut in as of September 3. According to the MMS, personnel remain evacuated from 599 of the 717 normally manned natural gas and crude oil production platforms in the GOM. Personnel from 91 rigs out of a total of 121 rigs that normally would operate also remain evacuated. MMS estimates that 91.6 percent of the natural gas production and 95.8 percent of the oil production in the GOM remain shut in. The current natural gas production from the GOM is 7.4 billion cubic feet (Bcf) of gas per day. The shut-in data reflect information from 72 companies. In the aftermath of Hurricane Gustav, MMS has activated a Continuity of Operations Plan team that will monitor the operations activity and will remain in place until operations return to normal.
CSU Issues an Updated Forecast of the 2008 Hurricane Season in the Atlantic Basin. Colorado State University (CSU) released the report “Forecast of Atlantic Seasonal Hurricane Activity for September 2008 and Seasonal Update Through August” on Tuesday, September 2, indicating that the remainder of this year’s hurricane season is expected to be much more active than the average (1950-2000) Atlantic Basin tropical cyclone season. CSU estimated that hurricane activity after September 1 will include 4 hurricanes, 5 named storms, 35 named storm days, 20 hurricane days, 2 intense (Category 3-4-5) hurricanes, and 8 intense hurricane days (compared with an average of 5 days). According to CSU, the influences of El Niño conditions are uncertain, owing to tropical Atlantic sea level pressure values that were at near-record low levels during August. Lower sea level pressure values indicate decreased stability in the tropical Atlantic which leads to an increased cyclone activity.
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.