Natural Gas
Natural Gas Weekly Update Archive
for week ending September 17, 2008 | Release date: September 18, 2008 | Previous weeks
Next Release: September 25, 2008
| Overview | Prices | Storage | Other Market Trends | Natural Gas Transportation Update |
- Natural gas spot prices decreased at most market locations in the Lower 48 States this report week (Wednesday—Wednesday, September 10-17), even as disruptions in offshore Gulf of Mexico production continue in the aftermath of Hurricane Ike. However, price movements were not uniform, and prices increased at some trading locations directly supplied by offshore Gulf of Mexico production, which was almost entirely shut-in for most of the week. During the report week, the Henry Hub spot price increased $0.17 per million Btu (MMBtu) to $7.82.
- At the New York Mercantile Exchange (NYMEX), the price of the near-term contract (October 2008) had decreased to its lowest price in 2008 early in the week, closing at $7.248 per MMBtu on Thursday, September 11. However, the price increased nearly $0.631 per MMBtu in yesterday’s trading session. For the week, the September 2008 contract gained 51.7 cents per MMBtu, ending trading yesterday (September 17) at $7.91.
- During the week ending Friday, September 12, the implied net injection of natural gas into underground storage totaled 67 billion cubic feet (Bcf). Working gas in underground storage as of September 12 totaled 2,972 Bcf, which is 2.1 percent above the 5-year (2003-2007) average.
- The price of crude oil continued its recent steep decline, decreasing 5.1 percent during the report week. Nonetheless, a sharp increase of $5.90 per barrel in the West Texas Intermediate (WTI) average price yesterday appeared linked to macroeconomic conditions. The WTI price yesterday (September 17) averaged $97.39 per barrel, or $16.79 per MMBtu, which was $5.27 per barrel higher than the previous Wednesday.
Spot natural gas prices moved lower this week in most regions of the Lower 48, despite severe reductions in supplies from the Gulf of Mexico offshore as the industry continued its efforts to recover from Hurricane Ike. On a regional basis, spot markets along the Gulf Coast in Louisiana and East Texas registered an average price decrease of $0.01 and $1.06 per MMBtu, respectively. Lower prices for crude oil (which competes with natural gas in end-user markets and upstream investment), as well as lower natural gas demand and infrastructure constraints after the hurricanes, likely contributed to lower prices. For example, Houston and its environs continue to lack electric power, much of which is fueled by natural gas, following the hurricane. Across Texas, roughly 2.5 million households were without electricity immediately after the hurricane, and about 1.6 million remained without power as of 10 p.m. yesterday (September 17). Nonetheless, the direction of price movements in week-to-week comparisons was not uniform with some regional infrastructure disruptions and demand characteristics resulting in scattered price increases. The price at the Henry Hub in Erath, Louisiana, was 17 cents per MMBtu higher on the week, ending trading yesterday (September 17) at an average of $7.82. The Henry Hub, as well as other locations in Louisiana, is supplied at least partially by offshore production, which was still reduced by more than 6 Bcf per day as of yesterday, according to the Minerals Management Service (see Other Market Trends below).
The largest price decreases on the week occurred in the Midcontinent region, which also has the lowest current prices in the country. Available Midcontinent supplies were abundant during the week as demand in the region was likely considerably lower because of flooding (another effect of a strong weather front and the recent hurricanes). Additionally, at least one major pipeline in the region, CenterPoint Energy Gas Transmission (CEGT) has been reporting inordinately high levels of linepack on the pipeline and enforcing balancing of deliveries and nominations. Price decreases were widespread in the region, with the largest ($1.79 per MMBtu) occurring in the eastern trading pool for CEGT. The average price in the Midcontinent region declined $1.49 per MMBtu to $4.09, which was 43 cents lower than the average price in the Rockies (which often in recent years has had the lowest prices in the country).
Contrary to the general decrease in prices across the country, market prices at Northeast trading locations increased during the report week. The average spot price in the region was $7.94 per MMBtu yesterday, which was 1 cent higher on the week. Although temperatures in the Northeast were mostly mild during the report week, the slight price increase may have followed from some heating load with night-time temperatures dipping below freezing in a few locales in New England. For the week, the average spot price for delivery off Transcontinental Gas Pipe Line in the Northeast (in the Transco Zone 6, Non-New York locations) increased by $0.13 per MMBtu to $8.17, a premium of $0.35 per MMBtu to the price at the Henry Hub.
At the NYMEX, the price of the near-month contract (for October delivery) increased $0.517 per MMBtu during the report week to $7.910, owing to a surge in the price on Wednesday, September 17. The daily settlement price for the near-month contract on Thursday of last week reached the low point of $7.248 per MMBtu, which was the lowest price for a near-month contract since December 27, 2007 (for the January 2008 contract), and the lowest price for the October 2008 contract since trading on August 3, 2005. However, the general decline in the price of the contract recently was reversed yesterday, as the price of the near-term contract rose 63.1 cents per MMBtu during the trading session, marking the largest single-session gain in value for any near-term contract since a gain of 79 cents on October 16, 2006 (for trading of the November 2006 contract). Despite yesterday’s gain, which occurred on a day the price of crude oil gained $5.90 per barrel, the price of the near-term contract is still substantially less than during the chaotic aftermath of Hurricane Katrina in 2005, when the October contract expired at $13.907 per MMBtu. Relative to the past 2 years, the current contract price for October is 23 and 88 percent higher than the October 2007 expiration price of $6.423 and the October 2006 expiration price of $4.201, respectively.
The average futures contract price for the upcoming heating season (November 2008 through March 2009) rose $0.40 per MMBtu on the week to $8.517. This price is $0.70 per MMBtu more than yesterday’s Henry Hub spot price, suggesting an economic incentive to inject natural gas into storage. Beyond March 2007, the contracts for the next year increased but at more modest increments ranging between 24 cents and 18 cents per MMBtu. The 12-month futures strip (October 2008 – September 2009) settled yesterday at $8.40 per MMBtu, which is 31.4 cents higher than last week.
Working gas in storage increased to 2,972 Bcf as of Friday, September 12, 2008, according to EIA’s Weekly Natural Gas Storage Report (Weekly Natural Gas Storage Report (see Storage Figure). This report week’s implied net injection of 67 Bcf is lower than the 5-year average injection of 77 Bcf and above last year’s injection of 63 Bcf. As a result, current inventories are now 2.1 percent above the 5-year average level of 2,911 Bcf. The difference between current inventories and levels last year at this time decreased to 4.6 percent, or 142 Bcf. If net additions through the end of October equal the average rate of the past 5 years, working gas stocks at the start of the heating season would be 3,390 Bcf.
The net injection came during a week in which about 38 Bcf of supplies were shut-in because of evacuations and other safety precautions related to Hurricanes Gustav and Ike in the Gulf of Mexico offshore taken by the industry, according to the Minerals Management Service. Reduced demand likely counteracted the effects of the large volume of supplies that were shut-in during the week, allowing for the substantial build in storage.
This week’s injection partly reflects moderate temperatures across the United States, which kept demand for heating and cooling needs low. For the week ending September 11, 2008, temperatures were slightly cooler-than-normal. However, the relatively low levels of 16 heating degree-days and 45 cooling degree-days for the week ending September 11 indicate minimal heating and cooling load for the country as a whole. (see Temperature Maps and Data)
DOE Reports on Hurricane Impacts: The U.S. Department of Energy (DOE) has continued tracking the impact of the recent hurricanes, Gustav and Ike. Hurricane Ike made landfall near Houston, Texas, at 3 a.m. EDT on September 13, 2008, as a strong Category 2 hurricane. DOE reported as of 6 a.m., September 17, that there are almost 3 million customers without electric power in several States because of the weather-related conditions. The biggest outage remains in Texas where almost 2 million customers are without power. According to the Minerals Management Service (MMS), 6,087 million cubic feet per day (MMcf/d), or 82 percent of the Federal Gulf of Mexico’s (GOM) natural gas production, remains shut in. In addition, operators have shut in about 1.2 million barrels per day (bbl/d) of oil production or 96 percent of the Federal GOM total, as of September 17. According to the MMS, Hurricane Ike destroyed 28 of the 3,800 offshore production platforms in the Gulf of Mexico. The platforms that have been destroyed produced a total of 82 MMcf/d of natural gas and 11,000 bbl/d of crude oil. Furthermore, a total of 425 production platforms, or 59 percent of the Gulf’s 717 manned platforms, remain evacuated. A total of 50 drilling rigs or 41 percent remain evacuated.
- As of September 17, at least 10 interstate pipeline companies had force majeure declarations in place, according to the U.S. Department of Energy (DOE). These pipelines include Mississippi Canyon Pipeline, Trunkline Gas Pipeline, and Black Marlin Pipeline, all of which continue to assess damage to their facilities following last week’s landfall of Hurricane Ike. However, ANR Pipeline Company reported that it has completed inspection of its southeast area facilities, which were cleared for nominations for Wednesday’s gas day, while damage assessments of its Louisiana onshore and offshore facilities continue.
- Sabine Pipe Line, LLC, lifted the previously declared force majeure on Tuesday, September 16, for a total of 11 points along its system, including 7 at the Henry Hub. However, compression at the Henry Hub complex remains unavailable at this time and Sabine advises its customers that gas flow through the system must be received at sufficient pressure.
- Southern Natural Gas Company reported minor damage to its interconnection with the Henry Hub (Sabine Pipe Line) as a result of Hurricane Ike and notified customers that gas flow will be allowed at reduced levels. The company expects all repairs to be completed within 3 to 5 days.
- Spectra Energy Transmission reported that there were no significant damages or effects to their facilities as a result of Hurricanes Gustav and Ike and anticipates that remaining inspections will be completed by the end of this week. Spectra owns and operates the Texas Eastern Transmission Corp. pipeline system, which has reported that there are currently no flows on its Cameron, South Pass, and Main Pass lines in Louisiana.
- The Energy Information Administration (EIA) has confirmed that 19 natural gas processing plants remain shut down, which includes those plants still affected by Gustav, totaling an operating capacity of 9.42 billion cubic feet (Bcf) per day (approximately 54 percent of the capacity in Hurricane Ike’s path). In addition, EIA reports that 13 plants have resumed operations at reduced or normal levels totaling 5.28 Bcf per day operating capacity and that 6 plants with 2.65 Bcf per day of operating capacity are capable of restarting once power is restored or upstream gas flow commences.
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.