• Since Wednesday, August 27, natural gas spot prices decreased at all markets in the Lower 48 States, with prices falling more than $1 per million Btu (MMBtu) at most locations. Prices at the Henry Hub fell $1.29 per MMBtu or about 15 percent, to $7.26 per MMBtu.



• At the New York Mercantile Exchange (NYMEX), the futures contract for October delivery at the Henry Hub settled yesterday (September 3) at $7.264 per MMBtu, declining $1.344 or about 16 percent in its first week as the near-month contract.



• Natural gas in storage was 2,847 billion cubic feet (Bcf) as of August 29, which is about 4 percent above the 5-year average (2003-2007), following an implied net injection of 90 Bcf.



• The spot price for West Texas Intermediate (WTI) crude oil decreased $8.79 per barrel on the week to $109.38 per barrel or $18.9 per MMBtu—its lowest level since April 8, 2008. Crude oil prices are now $35.93 below the record level of $145.31 per barrel established on July 3, a 25-percent decline.

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.

• Although infrastructure outages related to Hurricane Gustav continue, numerous companies have found no damage to their processing plants and pipelines in the Louisiana parishes where the storm made landfall on Monday. The owner of nine of the largest processing plants in the general region of the storm, Enterprise Product Partners, L.P., for example, on Wednesday reported “minimal or no visible” damage to its plants. As a number of other companies did, Enterprise noted that the loss of electric power represents its greatest “challenge” at the moment. On Tuesday, Targa Resources, Inc., the operator of several plants in the region, said that it had preliminarily assessed and found no damage at several processing plants. However, the company as of yesterday was unable to access its Yscloskey and Venice plants in St. Bernard and Plaquemines Parishes, respectively. These plants experienced massive damage during the 2005 hurricane season and were out of service for months. Regarding the status of pipelines in the region, Texas Eastern Transmission LP and Tennessee Gas Pipeline Company were among the interstate carriers reporting reduced flows. But the reduced flow levels were generally the result of shut-in production in the Gulf of Mexico. Production, however, is scheduled to return in significant increments in the coming days and the pipelines likely will return to pre-hurricane flow levels once this occurs. In Erath, Louisiana, operator Sabine Pipe Line, LLC, closed the Henry Hub, which is the physical delivery point for contracts traded on the New York Mercantile Exchange (NYMEX). Sabine yesterday reported having completely lost commercial electric power. However, the company said it would shortly begin accepting nominations for flows from many of the pipeline interconnections at the hub.



• Rockies Express Pipeline, LLC (REX) on Wednesday, September 3, 2008, began a major outage for hydrostatic testing of a portion of its mainline. The testing, which requires all natural gas to be removed from a segment of the pipeline and replaced with water, will be conducted between the Steele City Compressor Station in Gage County, Nebraska, and the Turney Compressor Station in Clinton County, Missouri. Because of the testing, there will be no delivery capacity at interconnections with ANR Pipeline and Panhandle Eastern Pipe Line in Missouri. The outage is scheduled to last until September 26.



• On Wednesday, September 3, Colorado Interstate Gas Company (CIG) implemented restrictions for injection of natural gas into underground storage on its system. The restrictions, contained in a Strained Operating Conditions (SOC) declaration, are expected to remain in place through the end of September. According to CIG, inventories are at or near reservoir guidelines. As a result, CIG said, its ability to absorb imbalances caused by mismatches between scheduled receipts and deliveries is extremely limited. During the effective period of the SOC, capacity for interruptible storage injections will not be available.

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.