for week ending September 10, 2008 | Release date: September 11, 2008 | Previous weeks
Overview | Prices | Storage | Other Market Trends | Natural Gas Transportation Update |
The formation of Hurricane Ike over the past week and its forecasted track pushed natural gas prices higher this report week. While the projected path of the storm indicates that areas in the western Gulf of Mexico will be affected the most and landfall is expected in the early morning hours of Saturday, at least two parishes in Louisiana are currently under mandatory evacuation orders. As a result, natural gas facilities offshore and onshore Louisiana are shutting in production and processing. Furthermore, several pipeline companies in the western Gulf of Mexico indicate that production and flows have been shut in as a result of the approaching storm, but the duration of the shut-ins remains uncertain. According to the Minerals Management Service (MMS), as of yesterday, about 96 percent of the Gulf natural gas production was shut in, and the cumulative shut-ins reached nearly 68 Bcf since August 28, with a loss of 38 Bcf during the report week (Wednesday-Wednesday). While the uncertainty and the impact of the storm was reflected in the price increases that occurred across the Lower 48 States, spot prices in areas along the Gulf coast increased between 8 and 63 cents per MMBtu, which was significantly below increases in other areas of the country where prices rose between 3 cents and $2.98 per MMBtu.
The only exceptions to the general pattern of price increases in the Lower 48 States occurred at a number of locations in the Northeast where prices decreased on the week. Milder temperatures in the region, which dampened space cooling demand, contributed to the decrease in some Northeast pricing points this week. Furthermore, the availability of natural gas in storage in the East Region, which currently stands at 6.3 percent above the 5-year average, indicates strong supply conditions, leading to further softening of prices.
On the regional level, spot prices in the Rockies increased this week, after sliding to $3.89 per MMBtu last Wednesday (September 3). Spot prices in this region fell dramatically early this month when the Rockies Express pipeline was closed for hydrostatic testing, thereby reducing the effective market for gas in the area. Since then, spot prices in the Rockies have been increasing, reaching an average regional price of $5.50 per MMBtu yesterday. Other regions in the Lower 48 States posted increases of less than 50 cents per MMBtu with the exception of West Texas, which increased by 63 cents.
Liquefied natural gas (LNG) deliveries continue to lag behind last year’s volume of imports, averaging at about 1.2 Bcf per day so far this month. Monthly average LNG flows so far in 2008 have been significantly lower than those in 2007, particularly for the months of April through August, the months in recent years when the United States has received most of its yearly LNG imports. This decrease is the result of natural gas prices in Europe and Asia that are significantly higher that those in the United States. For example, the LNG price in the United Kingdom exceeded that of the United States by $6.58 per thousand cubic feet (Mcf) last week, compared with a price differential of 8 cents per Mcf 1 year ago. As a result of the reduced LNG imports so far this year, LNG imports are expected to total 350 Bcf in 2008, compared with 771 Bcf in 2007 (see Other Market Trends).
Similar to the spot price movements, the price of the near-month contract at the NYMEX also increased this week. The October 2008 contract price rose $0.129 per MMBtu since last Wednesday as Hurricanes Gustav and Ike continue to affect natural gas production in the Gulf. Still, the price of the October contract remained significantly below the September 2008 contract, which traded well above $8 per MMBtu last month when it was the near-month contract. Prices for all other contracts in the 12-month strip decreased on the week, and the 12-month strip settled yesterday at $8.087 per MMBtu or about $0.081 lower than last Wednesday. The largest declines on the week were recorded for the January and February 2009 contract prices, reflecting the increase in overall production, above-average volume of natural gas in storage, as well as decreases in the price of crude oil.
Working gas in storage increased to 2,905 Bcf as of Friday, September 5, 2008, which is 2.9 percent above the 5-year average inventory level, according to EIA’s Weekly Natural Gas Storage Report Weekly Natural Gas Storage Report (Weekly Natural Gas Storage Report (see Storage Figure). This report week’s implied net injection of 58 Bcf is about 26 percent lower than the 5-year average injection of 78 Bcf for the week, falling short of the 5-year average net injection for the first time in 8 weeks. Net injections to storage would have been affected by the 36 Bcf of hurricane-induced production shut-ins in the Gulf of Mexico and the warmer-than-normal temperatures across much of the country. However, the 58-Bcf addition to storage surpassed last year’s injection of 56 Bcf by about 4 percent.
The lower-than-average net injection came during a week of warmer-than-normal temperatures in every Census Division except the Mountain and West South Central, which likely drove space cooling demand higher. According to the National Weather Service, cooling-degree days were about 21 percent higher than normal in the country as a whole. Temperatures in the New England, Middle Atlantic, and East North Central Census Divisions, which include key natural gas consuming areas, were between 25 and 75 percent higher than normal (see Temperature Maps and Data).
EIA Reports on Hurricane Impacts: The U.S. Department of Energy (DOE) has been tracking the impact of the recent hurricanes, Gustav and Ike. According to the Minerals Management Service (MMS), as of September 10, approximately 5.4 Bcf, or more than 70 percent of production in the Federal Gulf of Mexico, has been shut in. Since the initial shut-ins caused by Hurricane Gustav, 67.8 Bcf of natural gas has not been produced. DOE reported that as a result of Hurricane Gustav three pipelines do not have any gas flow available from offshore points as of September 10, and four pipelines have shut in their systems in order to prepare for the arrival of Hurricane Ike. As of 11 a.m. eastern daylight time, on September 10, 24 of the processing plants in the path of Hurricane Gustav have resumed operations, with some at a reduced level. Additionally, three other processing plants are waiting for the return of electric power and/or gas flow from upstream pipelines resume, while the remaining four plants continue to be shut down, one of which is undergoing scheduled maintenance. The approach of Hurricane Ike to the U.S. Gulf Coast has raised a new round of concerns and some facilities are taking action to shut down operations before Ike’s arrival.
EIA Releases the September Short-Term Energy Outlook. The Energy Information Administration (EIA) released its latest Short-Term Energy Outlook on September 9, which includes highlights about natural gas spot prices at the Henry Hub, residential natural gas prices for the upcoming heating season, and expected heating fuel expenditures for households using natural gas. The spot price of natural gas at the Henry Hub averaged $7.17 per thousand cubic feet (Mcf) in 2007 and is expected to average about $9.70 in 2008 and then decrease to $8.55 in 2009. Residential natural gas prices for October 2008 through March 2009 are expected to increase by $2.21 per Mcf from levels last heating season to an average of $14.93 per Mcf. Heating fuel expenditures for the average household using natural gas are expected to increase by $162 or 19 percent. Total natural gas consumption is expected to increase by 2.7 percent in 2008 and by 2.2 percent in 2009. Growth in all sectors is expected to remain high through 2009, driven primarily by increases in the residential and commercial sectors in 2008, and by electric power in 2009. Marketed natural gas production is projected to increase by 7.8 percent in 2008 and by 3.8 percent in 2009, owing to the strong production growth from the development of onshore fields, mostly in Texas and Wyoming. U.S. imports of liquefied natural gas (LNG) have declined from last year, as a result of growth in global LNG demand as well as the escalated relative prices in the Asia-Pacific region and Europe. LNG imports are expected to decline by more than 50 percent in 2008 reaching about 350 Bcf, and then increase to about 450 Bcf in 2009.
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.